Mutual Funds for Minors: Investing in Your Child Name

The child is the sole holder of the investment. A parent, either mother or father, or a court-appointed legal guardian is named as guardian and signs everything on the child behalf.

Joint holding is not allowed in a minor folio. The money belongs to the child, and the guardian only manages it. The guardian cannot use it for their own purposes.

Our page on the mutual fund folio explains how folios work in general.

Usually three things.

Proof of the child age, such as a birth certificate or passport.

KYC of the guardian, which must be complete. Our page on mutual fund KYC covers this.

Proof of relationship, which the birth certificate often covers for a parent. A legal guardian needs the court order.

Fund houses and platforms may ask for slightly different paperwork, so check at the time of opening.

Payments must come from the child own bank account, or from the parent or guardian account. Payments from a relative account, such as a grandparent or uncle, are generally not accepted directly.

If a grandparent wants to contribute, the usual route is to give the money to the parent or deposit it in the child account first. Our page on investing for grandchildren covers this.

Redemption money is paid into the child bank account, so it helps to have one.

A SIP works the same way as any other. The bank mandate is set on the parent or guardian account, or on the child account.

One thing to plan: SIPs in a minor folio are usually set to stop when the child turns eighteen, unless the folio is converted. So a SIP started for a toddler will not simply run forever without paperwork later.

Our page on setting up SIP autopay explains the mandate side.

This is the step most families forget, and it matters.

When the child turns eighteen, the folio must change from minor to major status. The child completes their own KYC, the bank account is changed to one in the child own name, and the guardian signature is removed.

Until this is done, the folio may be frozen for new transactions. So start the paperwork a few months before the birthday. Our page on transferring units also discusses this change of status.

There is a real choice here, and it is worth thinking through.

In the child name: the money clearly belongs to the child, which some families value. But once the child turns eighteen, it is legally theirs and the parent has no control over how it is used.

In the parent name, set aside for the child: the parent keeps control and can redirect the money if plans change. Many families prefer this for large amounts, for example for a college fund, as our page on saving for a child education discusses.

Neither is wrong. It depends on how much control you want to keep.

Income from investments in a minor name is generally added to the parent income for tax purposes, with some exceptions. This is called clubbing.

So putting money in a child name does not usually reduce the family tax. The details depend on your situation, and a tax adviser should confirm them. Our page on mutual fund taxation covers the general structure.

Many parents open a minor folio specifically for a child education. That works, with one caution.

College fees often fall due right around the time the child turns eighteen, which is also when the folio has to be converted. If the paperwork is not done in time, redemptions may be delayed exactly when the money is needed. So convert the folio well before the first fee is due.

And as the college date gets close, move the money gradually from equity to steadier funds, as our page on SIP versus STP explains.

A minor folio cannot have a nominee while the child is a minor, because the child is the holder. Once the folio is converted at eighteen, the child can add one.

Keep the folio number, statements and the child birth certificate together. Years later, finding these is much harder than it seems, as our page on finding unclaimed investments shows.

Yes, in some situations. If the parent who is guardian passes away or can no longer act, the other parent or a court-appointed guardian can be registered in their place, with the right documents.

This is another reason to keep the birth certificate and folio records together and easy to find.

Paying from a relative bank account, which gets rejected.

Forgetting the eighteenth birthday, so the folio gets frozen.

Losing track of the folio because it was opened years ago with an old email or phone number.

Assuming it saves tax, when income is usually clubbed with the parent.

All four are easy to avoid with a little planning at the start.

• Birth certificate and guardian KYC ready.
• Pay from the child, parent or guardian account only.
• Decide whether the money should be in the child name or yours.
• Diary a reminder a few months before the eighteenth birthday.
• Keep records together in one place.

We are distributors rather than investment advisers and we recommend no schemes. If you want help opening a folio for your child, get in touch.