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Investing in Mutual Fund for Minors: Check These Rules? Research Team | Posted On Monday, December 30,2019, 05:02 PM

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Investing in Mutual Fund for Minors: Check These Rules?



Parents love to invest in a minor child’s name to show love and affection. A favorite is investing in mutual funds in a minor child’s name. You can invest in any mutual fund scheme of any mutual fund house like Axis Asset Management Company Ltd, Baroda Asset Management India Limited, Canara Robeco Asset Management Company Limited, BOI AXA Investment Managers Private Limited and so on.

If you invest in mutual fund in a minor child’s name, he/she remains the first and sole holder of mutual fund folio. No joint holders are allowed for mutual fund investment in the minor’s name. Parents could be the guardian or there would be a court-appointed guardian.

To invest in mutual funds in a minor child’s name, give a child’s DOB and age. Offer a copy of age proof like a birth certificate, passport copy and so on. This shows age proof and also the relationship with the guardian. Do this while opening the mutual fund folio or before making the first investment. You can register SIP or STP instructions in a mutual fund folio, held in minor child’s name. This is valid only till the minor attains maturity. (Becomes 18 years of age). Systematic Investment Plan or SIP is where you invest small amounts regularly in mutual fund schemes of choice. Start a SIP with just Rs 500 a month. Systematic Transfer Plan or STP is a method of moving money from one mutual fund to another.

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Investing in Mutual Fund for Minors: Check These Rules?

Let’s take a look at the rules SEBI has framed for investments by minors in mutual funds.

SEBI Rules for mutual fund investments in minor’s name:

  • SEBI says investment for mutual funds in minor’s name done through cheque, DD or any other mode would be accepted only from minor’s bank account or from the joint bank account of a minor with the guardian. If the mutual fund folio or investor account already exists, the AMC would insist on a change of pay-out bank mandate. This is a must before redemption is processed. If mutual fund investment is made through SIP, minor SIPs cease when the minor attains 18 years of age. He would then follow the normal KYC process.
  • When your minor child turns 18, he would have to provide KYC details. These are the updated bank account details which include canceled original cheque of a new bank account. Further transactions can be done only if the minor status is changed to major.
  • SEBI has ordered AMCs to construct a system control during the account set-up stage of SIP and STP. The standing instruction would be suspended when the minor turns 18.
  • To approve transmission request processing turnaround time, the AMCs will have to compulsorily implement image-based processing. This is if the claimant is a nominee or joint holder in the mutual fund portfolio. The mutual fund house must have a dedicated central help desk and a webpage that carries all relevant information and also instructions to aid the transmission process.
  • AMCs must implement a common set of documents necessary for the transmission of units to all the claimants. This is very important for claimants who are nominees or joint holders.
  • According to SEBI rules, a uniform process must be implemented for the treatment of unclaimed funds that have to be transferred to the claimant. This also includes unclaimed dividends.
  • SEBI has also asked Mutual Fund Houses and AMFI (The Association of Mutual Funds in India is responsible for promoting and educating the common man on mutual funds), to promote the importance of nomination as part of investor education and awareness.
  • SEBI has also asked AMFI to prescribe forms for a common set of documents crucial for transmission of units and also set up a uniform process for the treatment of unclaimed funds within a period of 30 days. All fund houses must follow this strictly.

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