Can mutual fund investments be made in a child’s name?

Saving for your child’s future is a major goal for parents. Investing in a mutual fund in your child’s name is a viable option. An individual can invest in any mutual fund scheme on behalf of a child under 18 years old without any restrictions on the investment amount. The child will be the sole holder in the folio, with no joint holders allowed.

The guardian can be either of the parents or a court-appointed guardian. All transactions, including lump sum investments, systematic investment plans (SIP), systematic transfer plans (STP), switches, and redemptions, can be carried out in the child's account by the guardian until the child reaches 18. However, SIP or STP will cease once the child reaches 18, even if the instructions extend beyond that age.

For such investments, valid document proof of the child's age and the guardian's relationship with the child is required, such as a birth certificate or passport copy. Compliance with KYC regulations is mandatory, and payments for investment can be made from the minor's bank account, parent's account, or a joint account. Upon turning 18, all SIP/STP in the folio will be frozen for the guardian's operation, and the unit holder must operate the account independently.

The AMC/mutual fund will notify the unit holder before the child turns 18 to submit an application form and necessary documents to change the folio status from 'minor' to 'major,' along with a KYC acknowledgement letter. Investing in a child's name has the benefit of instilling discipline and creating a separate corpus.

However, a drawback is the potential difficulty in tracking switch redemptions, as the tax liability falls on the parent.

Parents also often worry about losing control over their child's investments when the child turns 18. They fear that at that age, children may misuse the money.

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