Can you invest in mutual funds in the name of your children?

How to invest in mutual funds for children?

invest in mutual funds for children

 If you want to teach your child the importance of saving and investing from a tender age, you can make him/her investment in mutual funds. This practice would go a long way for them to achieve discipline and financial stability. So you can always get your minor child to invest in mutual funds. However, they can do so only under the guidance and supervision of a parent or a legal guardian. Your child would be the only account holder, but the parent or guardian will be required to sign the transactions until the child turns 18. 

Once your child turns 18, you will need to notify the AMC to change the account holder's status. The status will then be changed from minor to major. This is a necessary step. If you do not notify the authorities, the transactions will not be processed after the child turns 18. Until the account holder is under 18 years of age, the taxes arising are to be borne by the parents or legal guardian. Once he steps into adulthood, the taxes for dividends or redemption of mutual funds are to be borne by him. 

Related: Best investment tools for creating children's education fund

Benefits of investing in a mutual fund

  • Liquidity - The best part is the flexible withdrawal of money. Thus, unlike fixed deposits, money invested in mutual funds can be withdrawn at any given time. However, ensure it's tax-free as you should consider factors like pre-exit penalty and exit load.
  • Diversification - It is a well-known fact that while the value of one investment may rise, the other may fall. Thus, diversification of funds is always a wise idea. This way, you can save yourself the trouble of risking all the investment money in one specific mutual fund that may drop down way below. So diversification will help safeguard your interests even if your investment in one fund suffers. 
  • Accessibility - It is very easy to access mutual funds. Thus, your minor child can start investing in any mutual fund worldwide due to its accessibility.
  • Flexibility is one of the major reasons you should consider having your minor child invest in a mutual fund. The flexible nature of mutual funds lets you invest as much money as possible, depending on your current financial position. You don't need to invest only a fixed amount every time. Thus, it does not create financial pressure on you as you can invest whatever amount you can at your own pace. 

Related: ULIP Vs Mutual Fund: Where to invest?

Are there any Mutual Fund schemes to invest in for your minor child?

There are several investment options suitable for a minor child. These include an equity fund, debt, or hybrid mutual fund. However, investing in an equity fund is advised as it provides you more time and is more convenient. An investment goal should always be present, for example, accumulating funds for higher education. Thus, the minor child can start saving for a long time to gather enough money to fund his higher education. However, there are some other mutual funds for minors to invest in that you should consider. The best example is a mutual fund designed to suit a minor child’s long-term financial goals. This would let your child invest in equity and fixed-income securities with a specific lock-in period. 

What are the documents required to invest in mutual funds under a minor childs name?

Two sets of documents are required to invest under your minor child’s name. As a parent or a legal guardian of the child, you are the one who will need to sign the transactions. Thus, documents proving your relationship with the child are essential. You have to abide by some rules and regulations. Only then can you be deemed fit to invest under your minor child’s name. 

First, you need to be KYC compliant regardless of whether you are the parent or the legal guardian. A birth certificate is also important, especially if a parent makes the investment and signs the transactions. 

Consider all the points before deciding upon a mutual fund to invest in whose account holder will be your minor child. Once the child steps into adulthood, he or she can take full charge of the account. As you already must have guessed by now, investing in a mutual fund has several benefits for your child. It will help the minor child to be financially aware, have a good sum of money saved up for his future endeavours, and practice financial discipline.

Related: Are you setting your children up for a stable financial future?

Best Child Investment Plan for 2022

 If you want to teach your child the importance of saving and investing from a tender age, you can make him/her investment in mutual funds. This practice would go a long way for them to achieve discipline and financial stability. So you can always get your minor child to invest in mutual funds. However, they can do so only under the guidance and supervision of a parent or a legal guardian. Your child would be the only account holder, but the parent or guardian will be required to sign the transactions until the child turns 18. 

Once your child turns 18, you will need to notify the AMC to change the account holder's status. The status will then be changed from minor to major. This is a necessary step. If you do not notify the authorities, the transactions will not be processed after the child turns 18. Until the account holder is under 18 years of age, the taxes arising are to be borne by the parents or legal guardian. Once he steps into adulthood, the taxes for dividends or redemption of mutual funds are to be borne by him. 

Related: Best investment tools for creating children's education fund

Benefits of investing in a mutual fund

  • Liquidity - The best part is the flexible withdrawal of money. Thus, unlike fixed deposits, money invested in mutual funds can be withdrawn at any given time. However, ensure it's tax-free as you should consider factors like pre-exit penalty and exit load.
  • Diversification - It is a well-known fact that while the value of one investment may rise, the other may fall. Thus, diversification of funds is always a wise idea. This way, you can save yourself the trouble of risking all the investment money in one specific mutual fund that may drop down way below. So diversification will help safeguard your interests even if your investment in one fund suffers. 
  • Accessibility - It is very easy to access mutual funds. Thus, your minor child can start investing in any mutual fund worldwide due to its accessibility.
  • Flexibility is one of the major reasons you should consider having your minor child invest in a mutual fund. The flexible nature of mutual funds lets you invest as much money as possible, depending on your current financial position. You don't need to invest only a fixed amount every time. Thus, it does not create financial pressure on you as you can invest whatever amount you can at your own pace. 

Related: ULIP Vs Mutual Fund: Where to invest?

Are there any Mutual Fund schemes to invest in for your minor child?

There are several investment options suitable for a minor child. These include an equity fund, debt, or hybrid mutual fund. However, investing in an equity fund is advised as it provides you more time and is more convenient. An investment goal should always be present, for example, accumulating funds for higher education. Thus, the minor child can start saving for a long time to gather enough money to fund his higher education. However, there are some other mutual funds for minors to invest in that you should consider. The best example is a mutual fund designed to suit a minor child’s long-term financial goals. This would let your child invest in equity and fixed-income securities with a specific lock-in period. 

What are the documents required to invest in mutual funds under a minor childs name?

Two sets of documents are required to invest under your minor child’s name. As a parent or a legal guardian of the child, you are the one who will need to sign the transactions. Thus, documents proving your relationship with the child are essential. You have to abide by some rules and regulations. Only then can you be deemed fit to invest under your minor child’s name. 

First, you need to be KYC compliant regardless of whether you are the parent or the legal guardian. A birth certificate is also important, especially if a parent makes the investment and signs the transactions. 

Consider all the points before deciding upon a mutual fund to invest in whose account holder will be your minor child. Once the child steps into adulthood, he or she can take full charge of the account. As you already must have guessed by now, investing in a mutual fund has several benefits for your child. It will help the minor child to be financially aware, have a good sum of money saved up for his future endeavours, and practice financial discipline.

Related: Are you setting your children up for a stable financial future?

Best Child Investment Plan for 2022

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