What happens to a minor’s mutual fund account3 min read . Updated: 19 Jan 2019, 08:38 PM IST
- A guardian can operate it on behalf of the minor
- A minor becomes a major when he/she turns 18
Mutual fund investments can be made in the name of minors, or those who have not attained the age of 18 at the time of making the investment and, therefore, cannot maintain the account on their own. These accounts are opened as “on behalf of account" with a guardian operating it on behalf of the minor. Guardians are either the natural guardian—mother, father or a court appointed guardian.
The application must be accompanied by documents as evidence of the date of birth of the minor and those to establish the relationship of the guardian with the minor. These documents include the birth certificate, school leaving certificate, passport and others. The court orders have to be provided in case of a court-appointed guardian.
Rules for guardians
The guardian has to comply with all the regulatory formalities in opening the account, such as completing the KYC process, providing PAN card and bank account details and others as required. The minor investor is not required to undergo any of these formalities at this stage. The minor will be the first and sole holder of the folio. A folio opened in the name of a minor cannot have a joint holder or a nomination.
The payment for the investment may be made from the guardian’s bank account or from a bank account in the name of the minor operated by the guardian. If the payment is made from any other person’s bank account, including a parent who is not mentioned as a guardian, it will be considered a third-party payment and subject to the limit of ₹ 50,000.
The guardian in a minor’s mutual fund folio can be changed with the consent of the existing guardian or it may be necessitated by the death of the existing guardian or to comply with a court order appointing a guardian for the minor’s investments. The new guardian’s details, such as PAN, signature duly attested by the bank manager, bank account details and compliance with KYC norms, have to be registered with the mutual fund and supported by documents required as evidence.
On becoming a major
When the minor turns 18 and becomes a major, the right to operate the account passes to the now major investor.
To update the change in status, an application has to be made to the mutual fund in the prescribed format, giving details of the folio and information such as the new investor’s PAN, contact details and bank account details. The investor has to comply with KYC formalities and provide proof for the same. A cancelled cheque with the name of the investor and account details printed on it has to be provided. The signature of the investor attested by the bank manager has to be provided for inclusion in the records held with the mutual fund.
The folio will be updated with the information provided by the investor and replace that of the guardian. All further transactions in the folio can be undertaken directly by the investor who has now become a major, and the guardian can no longer operate the folio.
Typically, mutual funds freeze transactions in the folio till the status of the investor as a major is updated and related formalities are completed. Some mutual funds may allow existing standing instructions to continue but the guardian cannot make any fresh financial or non-financial transaction in the folio after the date of the minor becoming a major.
Mutual funds usually send notices to the unitholder before the date of such change in status. Complete the formalities in time so that the operations of the account are not held up.