Can a Minor Invest in Mutual Funds? All You Need to Know About It
Mutual Fund for Child: Is a Guardian Necessary?
A minor mutual fund investor must work on their own name as these are the laws defined by the government of India. Minor is going to be the sole and the first holder of the portfolio. The guardian's job is to teach kids how to invest and let them know about the terms and conditions of the investment policies. Apart from that, in some cases, a minor is not permitted to make the financial decision under his own name. That's why a guardian is needed who will be the custodian of the account.
Investing in Mutual Funds for Minors
Of all the different aspects of investment, one considered the safest option is investing in mutual funds. Investing in mutual funds by minors can be done with the help of a guardian or a parent. The portfolio will be named after the kid, and one thing we would like to clarify is that one cannot open a joint account with their parents in any form of investment.
In investment and finance, anyone below 18 is considered a minor. Even adults feel a little overwhelmed when they put their money into an investment. As a result, investment from minors is something of an unspoken concept. But over time, and due to the presence of the internet, things have changed. Now parents are teaching their kids about investment basics, how it should be done from online portals, and more.
Why is it Important to Invest Early?
If you are not sure whether to start investing or not, then let us be your expert guide here and show you what the benefits of starting investing at an early age are. Many of the surveys show that when you start investing early, you will become richer in short as you will understand how to utilize your money to its full potential. Given below are some of the main benefits of minor investment benefits in mutual funds, which everyone needs to know about.
More Recovery Time
When you start early, and due to some reason, you incur losses, you will have more time to make up for those losses on your investment. Whereas if we compare this with the investment made by someone in the later stage of life, they will have less time to recover from their losses. As a result, the early investment gives you the advantage of time so you can grow your money.
Save More
With a minor investment in mutual funds, your kid will understand the importance of saving and make it a habit to do more. The more amount you invest, the more your kid is going to get in his future. Because of this thought process, your kid will be able to save more money and cut any of their unnecessary expenses.
Improves Risk Taking Capabilities
Young investors have a better risk-taking ability than older ones. This is because adult investors are more conservative and want to play all their cards right. The old saying is more the risk, the more the reward. The probability of earning a handsome amount of money at a very young age makes it possible for the young generation to take higher risks.
Secured Future
There will surely be times in your life when you will need extra money in case of urgency or to meet unavoidable expenses. During such times, investments made at the early stages of life can come quite handy, and they will get you through tough times without you having to take help from someone else.
Become a Creditor
With money present in your investment, you are free to get it whenever you want. As a result, instead of being a debtor, you could become a creditor and help your friends and family in their time of need.
Support Your Retirement Plan
We know retirement is a long shot for young minds as they have their whole life ahead. But the truth is, the earlier you start saving money for your retirement, the better returns you will get at retirement. In addition, you could even take early retirement from your work and live off the money you have made from suitable investments at the early stage of your life.
How to Invest in Mutual Funds for Minors?
For a minor to open up a mutual funds folio of their own, there is little documentation that one needs to submit. Given below, we have mentioned all the necessary documents which one needs to start a mutual fund.
- First, you need to provide proof of age and the date of birth certificate of the minor who is opening a portfolio for mutual fund investment. One can use a birth certificate or their issued passport by the government of India.
- The second document required for opening a minor mutual fund portfolio is the one where the relationship between the guardian and a parent is mentioned with the minor. In this case, you can have a passport that defines the name of the parent, or even a birth certificate will work.
- Apart from that, if a minor is opening a mutual fund folio with the guidance of a guardian, then a copy of the court order will be required. In addition to this, the parent or the guardian needs to provide the Know Your Customer (KYC) information as per the extant SEBI regulations.
- Keep in mind all these documents and the folio of a minor mutual fund is valid till the age of 18, and it will automatically cease after the minor reaches 18 years of age. After the specific date of their birthday, minors will be regarded as an adult, and they have to go through the entire process of KYC in their own name.
- If a minor or the guardian who is linked with folio wants to change themselves. They first need to provide a No-objection Certificate (NOC) from their end. Along with that, a court order has to be passed for the appointment of a new guardian, and they also have to go through the KYC process based on SEBI regulations before becoming their guardian to a minor.
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Conclusion
Well, there you have it; this is all about minor investing in mutual funds. It is a great thing to start early and learn the concepts of investment, finance, and other important terms which are going to help minors later in their lives.
Can minors invest in stocks?
Yes, minors can invest in stocks, but they need to have a guardian or a parent helping them in locking the final units. Minors can open a custodial account with their parents or with a guardian to learn the concepts of investment and save their money for the future.
What about the capital gains which are made on the fund held by a minor?
All the money that is made by a minor from mutual funds or from any sort of investment will be clubbed with that of a parent or the designated guardian. The income tax has to be paid by the adult with whom the minor's income is being clubbed.
What happens when a minor becomes a major or an adult in a mutual fund folio?
When a minor becomes an adult or a major, they have to re-apply for the KYC, but this time in their own name. In addition to this, all their money, investment, savings, profits, and losses will be 100% dependent on their decision, and there will be no need for a guardian or a parent to create a new folio. With the help of PAN card details, your investment information of minor mutual funds folio will be clubbed with your new folio of whom you are going to be a sole holder.