Parents often start investing early to build a financial fund for their child’s education, higher studies, marriage or other major expenses. Mutual Fund SIPs are one option that many families consider for long-term goals.
However, investing in a minor’s name comes with different rules compared with a regular adult mutual fund account.
The child remains the beneficial owner of the investment, while the parent or legal guardian handles the account until the child turns 18.
Documents Are Required to Start a Child SIP
A minor cannot independently operate a mutual fund account. Parents also cannot open a joint mutual fund account with their child in the same way two adults can.
To start a mutual fund investment in a child’s name, documents confirming the child’s age and identity are required. These may include a birth certificate or passport.
Documents establishing the relationship between the child and guardian may also be required. The parent or legal guardian has to complete the required KYC process.
If the guardian has been appointed by a court, the relevant court order may also be required.
Bank Account and KYC Details Must Be Correct
Parents should carefully check the bank account and KYC details before starting a SIP for a minor.
Under the applicable framework, money for investments in the minor’s mutual fund account can be transferred from the child’s bank account, the parent’s or guardian’s bank account, or a joint bank account held by the child and parent or guardian.
Keeping the bank details and KYC information accurate can help avoid problems with future transactions.
What Happens When the Child Turns 18
The biggest change takes place when the minor becomes a major at the age of 18.
The mutual fund folio does not automatically become a regular adult account. Transactions can be stopped until the required information is updated.
The child must complete their own KYC and provide details such as PAN, bank account information and signature.
Until the folio status is changed from minor to major, transactions such as withdrawals may not be processed.
SIP May Need to Be Updated After Age 18
Existing SIP arrangements can continue only as permitted under the applicable mutual fund process until the child turns 18. To continue investments after adulthood, the account status needs to be changed from minor to major.
Once the required KYC and other details are updated, the investor can resume SIPs and other transactions according to the mutual fund’s rules.
Parents should therefore start preparing the required documents before the child turns 18. Having the PAN, bank details and KYC information ready can make the transition smoother.
Keep Nomination and Investment Records Updated
Parents should also remember that the rules for making a minor a nominee can differ from the rules for investing in a minor’s name.
For example, a minor can be nominated in a life insurance policy, but an adult appointee may be required to receive and manage the claim proceeds on the minor’s behalf.
Therefore, parents should regularly check important investment records, including KYC details, bank information, guardianship documents and nomination details.
Starting an investment early can help parents work towards long-term financial goals, but keeping the account information updated is equally important.
Parents should pay particular attention when the child approaches 18 because the account and transaction requirements change at that stage.
