When parents start saving for a child, one question comes up almost every time: should the investment be in the child's name or in ours? Putting it in the child's name feels right. It's their money, after all. But the practical side is more complicated, and the answer isn't the same for every family. Here's how both options work, what changes when the child turns 18, and how to decide.
How a minor's folio works
A child under 18 can hold mutual fund units in their own name. The folio is opened with the child as the sole holder and a parent or legal guardian managing it. Payments usually have to come from the child's bank account, or from the guardian's account with the right declarations. Our page on mutual funds for minors explains the paperwork in detail.
The guardian handles everything until the child becomes an adult. Then things change quite a bit.
What happens at 18
When the child turns 18, the folio has to be converted to "major" status. The child completes their own KYC, signs, and links their own bank account. Until that's done, the fund house may stop SIPs and won't process transactions on the folio.
After that, the money is legally theirs. Fully. They can redeem it, keep it, or spend it, with or without your agreement, and while most young adults are sensible about it, some are not, and a parent who planned that money carefully for eighteen years can find it hard to watch it go towards something they never had in mind.
A common situation
Picture a couple who start a SIP in their daughter's name when she's born. Eighteen years later, the fund has grown nicely. She's just finished school. She's excited about a course abroad, then changes her mind, then wants a gap year. Meanwhile the folio needs converting, her KYC isn't done yet, and the SIP has stopped. Legally, every decision about that money is now hers.
Nothing went wrong, exactly. But the parents had less say than they expected. That's the trade-off.
The case for the child's name
It's clearly set aside. Money in the child's name is psychologically harder to dip into for a new car or a home renovation. That alone can protect the goal.
It sends a message. Some parents like the idea of handing over a growing fund to their child at 18, along with lessons about managing it.
It may help with planning across the family. In some situations, holding money in a child's name can make sense for broader family reasons. A tax adviser can explain how income from a minor's investments is treated, as the rules on clubbing with the parent's income matter here. I won't go into rates or rules, because they change and depend on your case.
The case for your own name
Flexibility. This one is big. Plans change. The child might get a scholarship, choose a cheaper course, or need the money earlier than planned. Or the family might face a crisis where that money is needed elsewhere. In your name, you can adjust.
Control after 18. Not every 18-year-old is ready to handle a large sum. If the money is in your name, you decide when and how it's used for their education or wedding.
Simpler paperwork. No guardian declarations, no conversion at 18, no SIPs stopping while documents are updated.
Easier to manage alongside other goals. You can see everything in one place and rebalance as needed.
The middle path most families use
In practice, many families keep the money in a parent's name but in a separate folio clearly labelled for the child's goal. It's set aside mentally, tracked separately, and used only for that purpose. But the parent keeps control and flexibility.
Add the child, or the other parent, as nominee. That way, if something happens to you, the money reaches the right person. Our page on nomination explains how to set this up.
When the child's name makes more sense
- When you want the money firmly ring-fenced from the rest of the family's finances.
- When grandparents or relatives are gifting money specifically for the child.
- When you're comfortable with the child taking full control at 18.
- When a tax adviser confirms it suits your situation.
When your own name makes more sense
- When you want flexibility to change plans.
- When you'd prefer to decide how the money is used after 18.
- When you want simpler paperwork and fewer interruptions.
- When the money might also serve as a family backup.
What about gifts from grandparents?
Grandparents often want to give money for a grandchild's future. That's lovely. It's also one of the cleaner reasons to use a minor's folio, because the gift is clearly meant for the child and nobody else.
If grandparents prefer to keep control themselves, they can also invest in their own name with the grandchild as nominee. Both work. Our page on saving for grandchildren covers the options.
Two children, two folios
If you have more than one child, keep a separate folio for each. Even if the funds are the same. Mixing their money in one folio makes it hard to see how much belongs to whom, and can cause disagreements later. Separate folios, clearly labelled, avoid all of that.
Don't forget the bigger priority
Whichever name you choose, there's something more important. Don't fund your child's goals at the cost of your own retirement. Your child can take an education loan if needed. Nobody lends you money to retire.
So check this first. Make sure your retirement SIP is running before you pour everything into children's funds. Our page on investing for retirement explains why it deserves a place early.
Choosing the funds themselves
The name on the folio doesn't change which funds suit the goal. What matters is the time frame. For a newborn's college fund, you have many years, so diversified equity funds can do the heavy lifting. As the admission year gets close, move the money gradually to steadier funds so a market fall doesn't hit at the worst moment.
Our pages on saving for child education and saving for school fees explain how to plan for different timelines.
Teaching your child along the way
This part matters a lot. Whoever's name it's in, involve your child as they grow. Show them the statement once a year. Explain what a SIP is. Let them watch the money grow and fall and grow again. By 18, they'll understand far more than most adults did at that age.
Our post on teaching children about money has practical ideas.
Can you change your mind later?
Partly. Money already in a minor's folio belongs to the child, so you can't simply move it back into your own name. You can, however, stop the SIP and start new investments in your name from then on.
Going the other way is easy. If you've been saving in your name and later decide to gift some to your child, you can redeem and invest in a minor's folio, keeping in mind any tax on the redemption. It's worth deciding early, but it isn't a decision you can never adjust.
Quick summary
- A child's name ring-fences the money but hands full control to them at 18.
- Your own name keeps flexibility and control.
- A separate folio in your name, labelled for the child, works for many families.
- Always add a nominee.
- Don't neglect your own retirement.
If you're starting to save for a child and want help setting it up the right way for your family, I'm happy to talk it through. Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working from Indore since 2014. Get in touch.
