FUND BASICS: Investing on behalf of a minor

One can invest in a mutual fund scheme on behalf of a minor.

In fact, many funds have plans exclusively targeted at investments for minors. We explain the guidelines for investing in funds on behalf of a minor.

What are the guidelines regarding investments in the name of minor?

The minor should be the first and the sole holder in an account. That is, there cannot be a joint holder. The date of birth of the minor would have to be provided in the application form along with a photocopy of supporting documents — birth certificate, passport or school-leaving certificate.

The guardian in the folio on behalf of the minor should either be a natural guardian (father or mother) or a court-appointed guardian, and this must be mentioned in the in the application form.

Investors have to provide information on the relationship of the guardian as father, mother or legal guardian in the application form and supporting documentary evidence will have to be provided (copy of birth certificate or passport). Details of documents which can be provided will be available along with the application form in the key information memorandum.

What is the procedure to change the status when the minor becomes an adult?

When the units are held on behalf of a minor, the ownership of the units rests with the minor. A guardian operates the account until the minor attains adulthood. When a minor grows up, funds will seek relevant documents and follow the guidelines as enumerated below.

Before becoming an adult, funds intimate the guardian and the minor in advance and advise them to submit a form along with the prescribed documents to change the status of the investor to “major”. The account will not be operable by the guardian on and after the day the minor attains adulthood and the guardian would not be able to undertake any financial and non-financial transactions in the folio after that date. Once the status is changed, the now-adult investor may transact in the folio.

What documents does one need to change the status of the minor ?

A service request form letter containing details such as fund, name of the investor (now an adult), and folio number.

New bank mandate registration form if there is a change in the bank account of the investor. The proof in the form of a cancelled cheque with the investor's name appearing therein should be attached. Signature attestation of the investor by the bank manager. A know-your-client acknowledgement of the investor.

What about SIP registration in a minor's folio?

Systematic investment plans can be registered on behalf of a minor. However, asset management companies will register a standing instruction for an SIP, a systematic withdrawal plan or a systematic transfer plan in a minor's folio only till the date of the minor became an adult. This would mean that even if the SIP form contains an end period which is beyond that date, the SIP would be registered only till then.

(Contributed by Investor Education Team of CAMS. The views expressed are general practices in the mutual fund industry and may vary according to the case.)