Can a Minor Invest in Mutual Funds? All You Need to Know About It

Yes, a minor, anyone below 18 years of age, can invest in mutual funds in India. But a minor cannot open or operate the account alone. The investment is made in the minor's name and managed by a parent or legal guardian on the child's behalf until the child turns 18. Many parents use this to build a long-term corpus for a child's education or future. This guide walks through how it works, the current SEBI rules, and how the tax is handled.

How a Minor's Mutual Fund Account Works

A few rules define these folios (a folio is your account number with a fund house):

• The minor must be the sole and first holder. A minor's folio cannot be a joint account.
• A parent or a legal guardian appointed by a court represents the minor and signs on their behalf.
• The guardian operates the account only until the minor reaches 18.

Because the minor is the sole owner, the investment legally belongs to the child, not to the guardian, a point that also affects the tax, covered below.

What You Need to Open One

To start, the fund house typically asks for:

• Proof of the minor's age and date of birth (birth certificate or passport).
• Proof of the relationship between the minor and the guardian, or the court order appointing a legal guardian.
• The guardian's completed KYC (Know Your Customer) verification.
• A bank account for the minor, which can be held jointly with the guardian.

Payment and Redemption Rules

SEBI standardised these through a circular dated 12 May 2023 (effective from mid-2023):

• Payment for the investment can come from the bank account of the minor, or of the parent or legal guardian, or a joint account of the minor with the parent or guardian.
• Redemption proceeds, however, are credited only to the verified bank account of the minor (which may be held with the guardian). This keeps the money with the child, in whose name the investment is held.

What Happens When the Minor Turns 18

This is the step most people miss. On the day the minor turns 18, the guardian's authority ends. The fund house freezes the folio for all transactions, including any running SIPs (Systematic Investment Plans, where a fixed amount is invested regularly) and redemptions, until the account is converted to "major" status.

To unfreeze it, the now-adult investor must submit the "minor attaining majority" (MAM) application form along with their own adult KYC, PAN, signature, and bank details. Fund houses usually send advance reminders before the child turns 18, but the responsibility to complete the change sits with the investor. Any SIP stays paused until this is done, so it is worth acting before the birthday.

Common Confusion: it is the Child's Investment, not a Joint One

People often assume a minor's folio is a shared parent-and-child investment. It is not. The minor is the sole owner; the guardian only operates it. That is why redemption money must go to the minor's account, and why the folio freezes the moment the child turns 18. Treating it as your own account is the usual cause of surprises later.

Things to Keep in Mind

• No joint holding: the minor is the only holder, and a guardian stands in, so plan for the majority-transition paperwork in advance.
• SIPs stop at 18: a running SIP will not continue past the child's 18th birthday until the account is updated. Convert the folio in time.
• Clubbing while a minor: the gains are taxed as the higher-earning parent's income until the child turns 18, not separately.
• Keep documents ready: age proof and the guardian's KYC are needed upfront; incomplete KYC is the most common delay.

Conclusion

A minor can absolutely be a mutual fund investor, through a parent or legal guardian, with the child as the sole owner of the folio. The essentials are simple: the guardian manages it until 18, payments can come from the guardian's or minor's account, but redemptions go only to the minor's account, the folio freezes at 18 until converted, and the income is taxed with the higher-earning parent until then. Handled with the paperwork in mind, it is a straightforward way to invest early for a child's future.