Can a minor invest in Mutual Funds? Well, the answer is yes, a minor can invest in Mutual Funds with the assistance of their parents or legal guardians. In addition, investments in any instrument may be made on behalf of a minor child, that is, a child under 18, by all Mutual Fund companies.
You can certainly do it with Mutual Funds if you believe that trying to hold the investments in your child's name might very well keep you more energized and diligent in circling up a specific allotment from your other investments.
However, any income or capital gains from these investments would be considered the child's income once the child reaches the age of maturity.
There are some benefits and drawbacks to this Mutual Fund investment process in a minor's name. This blog will discuss the Pros and Cons of investing in Mutual Funds in a minor’s name.
The Mutual Funds pros and cons for investing in a minor's name are listed below, so read on!
Pros of Investing in Mutual Funds in A Minor's Name
The benefits of investing in Mutual Funds in a minor's name are listed below-
- Investing in a minor's name means setting aside a portion of your other investments for a specific purpose, such as funding a child's higher education.
So, investing in a minor's name enables you to establish a particular allocation.
- Investments made in your child's name can assist you in developing greater motivation to make financial goals for your child a priority.You are highly likely to become emotionally invested in building a corpus for the future of your child, which will keep you from giving in to the desire to withdraw the money.
- Additionally, not only parents or guardians but the existence of a different investment account in a child's name increases that child's awareness of financial responsibilities and obligations.
Early ownership experiences with investment products help children develop the tendency to save money.
- Notably, long-term mutual fund investments will improve the taxpayer's tax efficiency. This is because any capital gains from the investment in mutual funds will be taxed according to the tax bracket of the parent or legal guardian while the child is still a minor.
The child will be responsible for paying capital gains tax once they are 18+
- When a child turns 18 and has no other source of income, the tax obligation is typically minimal or non-existent. This would be significantly less than what parents, probably in a higher income tax bracket, would pay.
Cons of Investing in Mutual Funds in A Minor's Name
The disadvantages of investing in Mutual Funds in a minor's name are listed below-
- The possession of these investments is transferred to the child once they reach the age of maturity, which is another crucial point to keep in mind.
When the child reaches the age of maturity, the account is frozen until the necessary paperwork is in place to transfer ownership, including the right for the child to make investments in or withdrawals from it.
- Additionally, passing a sizable sum of money to the child when the child is only 18 may not be a good idea. Children occasionally lack the maturity to handle money properly and use it correctly. Many people consider this as one of the disadvantages of investing in a Mutual Fund on behalf of a minor.
- The situation would have been preferable if a joint holding facility had existed. However, common ownership is not permitted in a minor's mutual fund portfolio. Instead, the minor's parent or legal guardian must act as the account's sole representative.
Paperwork Required to Open a Mutual Fund Account in A Child's Name
Following procedures must be followed by the guardian to begin a Mutual Fund investment in a child's or a minor’s name:
- Authentic evidence of the child's age.
- Proof of the child's relationship with the guardian.
- A copy of the child's birth certificate or passport is acceptable as evidence of the child's age and the relationship to the guardian.
When the initial investment is made, these documents must be provided. However, the guardian need not submit the supporting documents again if there are additional Mutual Fund investments with the same fund house.
Wrapping Up
In conclusion, make an informed choice regarding your child's future. Always remember that what may not work for you may work for someone else.
So, invest according to your comfort level. However, keep in mind that before making any investment decisions, it is crucial to conduct your research.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.
FAQs
Can a minor invest in Mutual Funds? Well, the answer is yes, a minor can invest in Mutual Funds with the assistance of their parents or legal guardians. In addition, investments in any instrument may be made on behalf of a minor child, that is, a child under 18, by all Mutual Fund companies.
Can I put investments in my childs name? ›
Because minors are not eligible to open their own brokerage accounts, parents and guardians can open a custodial account in a child's name and manage the activity. Custodial accounts provide an excellent opportunity to explore the principles of investing with a child.
Can a minor own a mutual fund? ›
Minors cannot open a mutual fund.
Your child won't be able to open a mutual fund on his or her own until attaining age 18 or 21, depending on where you live. You can set up a custodial account for a minor child with yourself or another adult as custodian.
How do I open a mutual fund in my child's name? ›
Open a Minor's Account: The mutual fund account should be opened in the minor's name with the parent/guardian as the custodian. The custodian will manage the account until the child turns 18. Provide Necessary Documents: You must provide proof of the child's age and your relationship with the child.
How do I pay for mutual fund purchases in my child's account? ›
The payment can be completed using UPI, netbanking, NEFT, or RTGS. The SIPs can also be linked to the mandate to be auto-debited from minor's bank account.
How to invest in direct mutual funds for minors? ›
Since the minor is not permitted to take financial decisions in her own name, there will have to be a designated parent or guardian who will be the custodian of the account. While the minor will be the first and sole holder, the guardian can be either of the parents or any legally appointed guardian.
What is the best way to invest money for a child? ›
Best investment accounts for kids
- Teen-owned brokerage account.
- 529 college savings plan.
- Coverdell education savings account.
- Custodial Roth IRA.
- UGMA or UTMA custodial accounts.
Documentation Required for Investing in a Minor's Name
To begin, you need to verify the minor's age and date of birth. This needs to be presented in a birth certificate, or a passport issued by the government. You need to establish the minor's relationship with the guardian in the second document.
Do I have to report my child's investment income? ›
A dependent child who receives more than $1,250 in investment income in 2023 ($1,300 in 2024) is required to file a tax return. Investment income includes interest and dividend payments.
Which mutual fund is best for a child? ›
Overview of the Best Children Mutual Fund
- Tata Young Citizen Fund. ...
- ICICI Prudential Child Care Fund – Gift Plan. ...
- Aditya Birla Sun Life Bal Bhavishya Yojna. ...
- LIC MF Children's Fund. ...
- Axis Children's Gift Fund – No Lock-in. ...
- Axis Children's Gift Fund – Compulsory Lock-in. ...
- SBI Magnum Children's Benefit Fund – Savings Plan.
A youth account, also known as a children's savings account or kids' account, is one of the best savings accounts for a grandchild. Typically, these accounts are specifically tailored to meet the financial needs and goals of young individuals.
Can you open a Vanguard account for a minor? ›
A Vanguard Personal Investor Kids Account allows you to invest on behalf a child under 18 years of age. the child will need to be under 18 years of age.
How do I change ownership of a mutual fund? ›
However, mutual fund transfer can only be done incase of unitholder's death. Other than that, mutual fund transfer from one person to another can be done via the open market, i.e., the unitholder sells MF units, and the intended buyer purchases the same at the relevant market price.
How to buy mutual funds for grandchildren? ›
A custodial brokerage account for a minor grandchild can be used to invest in securities such as stocks, mutual funds and more. Your grandchild owns the account; you manage it and make the investing decisions until the grandchild reaches legal age.
Can I gift a mutual fund to my child? ›
As per current regulations in India, mutual fund units can't be directly transferred to another person, even if that person is a close family member like your son or daughter.
Can I invest on behalf of a minor? ›
UGMA/UTMA Custodial Accounts
A parent or relative can open an account on behalf of a child, and they act as the account custodian until the child comes of age.
Can we buy shares in the name of minor? ›
Therefore minors cannot directly make share market investments. He/she needs a guardian to invest on his/her behalf. However, as per the Companies Act, 2013, any citizen of any age can own shares of listed companies. Hence, minors can have Demat accounts to their name but cannot trade shares via that account.
How can a minor invest without parents? ›
If you are under 18, you cannot own stocks, mutual funds, and other financial assets outright. As a minor, you can make investments only under the supervision of your parent (or an adult) through a custodial account.
Can I invest in mutual funds for my parents? ›
You can plan to invest in mutual funds depending on the retirement age of your father. Make sure that you invest in those equity oriented mutual funds which have a good record.
