Buying Mutual Funds in Your Child's Name: A Smart Way to Build Their Future

Some parents feel that when the child turns 18, the child will be able to operate the account independently and they will lose control over the investments. ET explains how a mutual fund can be a good option — and what parents need to know before making this decision.

Can Mutual Fund Investments Be Made in a Child's Name?

Yes. An investment can be made in any mutual fund scheme in the name of a child who is less than 18 years old, and there is no restriction on the investment amount. The child shall be the first and sole holder in such a folio. No joint holder will be allowed. The guardian in the folio can be either parent (father or mother) or a court-appointed guardian.

What Transactions Can Be Done?

All transactions — lumpsum investments, SIP, STP, switch, and redemptions — can be done in a child's account, operated by the guardian. This continues only till the date the minor attains 18. After that date, the SIP or STP will stop, even if instructions were given for a period beyond that date.

Documents Required

You need a valid document proving the child's age and your relationship with the child. The guardian must comply with KYC regulations. Payment for investment can be accepted from the bank account of the minor, parent or legal guardian, or from a joint account of the minor with parent or legal guardian.

What Happens When the Child Turns 18?

On the date the child turns 18, all SIP/STP in the folio will be frozen for operation by the guardian. The AMC will send a notice advising the minor to submit, on attaining majority, an application form with prescribed documents to change the folio status from 'minor' to 'major'.

Pros and Cons of Investing in a Child's Name