One of the most important goals for parents is the financial security of their children. They wish that their children do not have any scarcity of money for health, education, marriage, or other needs. For this purpose, parents may either earmark funds for their children in their investment accounts or invest in the minor’s name itself for more focused investment.
It would be helpful to know how to start investing as a minor and what avenues shall be open for investment as a “Minor” in India.
Who Is A “Minor”?
As per the Indian Majority Act, 1875, a minor is an individual who has not attained 18 years.
What Is The Procedure For Starting Investment As A Minor?
One cannot make an investment for a minor child simply by entering the child’s name as the account holder.
If you want to protect the minor child’s interests, you have to follow specific operating procedures in general for all investments made in the name of the minor child, wherever permitted. One must keep the following points in mind:
- As a minor is not considered to have the ability to make informed decisions on his account, all minor investments must have a specified “Guardian” responsible for managing the minor’s investments. In most cases, the parents are natural guardians of a minor, but a court-appointed guardian would be required in other cases.
- As proof, for the age of the child, a birth certificate would be required.
- A document that proves the relationship between the guardian and the child would be essential.
- The guardian is required to submit all the necessary documents such as bank details, Permanent Account Number (PAN), and complete Know-Your-Client (KYC) requirements.
- The guardian (from their bank account) will make all the payments and receipts for investments.
- Ownership of the investment, however, shall solely lie with the minor child.
- The account opened for the minor shall not be a joint account, and no nominees can be assigned to the account.
Procedure To Be Completed After The Minor Child Attains Adulthood
- Upon becoming a major, the child’s PAN and KYC will have to be submitted.
- The child’s signature, attested by the bank, will replace the guardian’s signature in the investment account.
- Minor child’s accounts that would have newly registered will make all future transactions related to the investment.
- The investment account created in the minor’s name cannot be operated once the minor attains majority.
Can Minors Invest In Stocks In India?
Yes. A minor can invest in stock markets, but a guardian shall operate the Demat accounts, trading accounts, and bank accounts.
Apart from the procedural steps discussed above, one must keep the following points in mind:
- Minor and minor’s guardian(s) are required to submit their PAN card to open the minor’s trading and Demat account.
- Minor Trading Accounts are allowed to invest in the stock market in Equity Delivery Trades only. They cannot deal in the Equity Intraday, Equity Derivative Trading (F&O), and Currency Derivatives (F&O) segments.
- When a minor attains majority, the existing account can be shut, open a new account in the major’s name, and all shares in the minor’s account are shifted to the new account. Or they can continue to use an existing account. The now major child should enter into a fresh agreement with the Depository Participant (DP) and fulfill all the necessary procedures for starting a fresh Demat account.
- If one jointly holds paper shares with a minor, they need to be transferred to the minor. After which, they should move them to the Demat account in the minor’s name.
- One can open a 3-in-1 Account (Bank + Trading + Demat Account) in the name of a minor.
Can Minors Invest In Mutual Funds?
Minors can invest in Mutual Funds with the help of a guardian. The minimum age to invest in mutual funds in India on one’s account is 18 years. There is no specification for a maximum age to invest in mutual funds in India.
Apart from the procedural steps discussed earlier, one must keep the following points in mind:
- Documents required for a minor’s investment in a mutual fund would be either of the following: Birth certificate, mark sheet, or leaving certificate from the HSC board of respective states, ICSE, CBSE, etc., minor’s passport, or date of birth proof.
- As per AMFI regulations, in case of modification in the minor’s guardian, because of a mutual decision between the parents or because of the death of the current guardian, one would require these documents:
- Form for modification in the guardian in the MAM Application form together with KYC and PAN of the newly appointed guardian.
- A letter of consent from the existing guardian, in case the cause is not the guardian’s demise.
- Certificate of Death, in case applicable.
- Name and signature of the newly made guardian should be registered with the bank account of the minor.
- When the child becomes a major, they need to apply for the same in the MAM form and the specified documents. Before submitting the MAM form, the unitholder should obtain a PAN, satisfy the KYC requirements, change the current bank account status, or open a fresh bank account. A fresh SIP, STP, SWP mandate in the prescribed form (to continue the SIP, STP, SWP, if applicable.) The account shall be frozen till the procedure is completed.
Other Avenues Where One Can Invest In The Name of The Minor
Gold: A minor can invest in a Sovereign Gold Bond (SGB). However, the applicant must have a guardian. Also, the guardian must submit the SGB application form along with a copy of his PAN.
A minor can also enroll for digital gold through the GoldRush platform. Moreover, one can open a metal account with Stock Holding Corporation after completing the registration process and submitting documents like proof of identity, address, and passport.
With the technological advancements, we see today, one can even explore investing in digital gold.
Real Estate: Parents can jointly buy property in the name of the minor, provided the contract is signed by the parent as their natural or legal guardian on behalf of the minor.
Public Provident Fund (PPF): In the capacity of guardian of the minor, an individual can open a PPF account in a child’s name. A maximum of INR 1.5 lakhs per year can be invested in a PPF. This is a combined limit for both the minor and the guardian. On turning 18, an application can be submitted to change the status from minor or major. If a withdrawal has to be made from the minor’s PPF account, the guardian must declare that the money is for the child.
Sukanya Samriddhi Account: Parents can hold two accounts simultaneously under the Sukanya Samriddhi Yojana saving scheme for two girls. In the absence of parents, the account can be opened through a legal guardian. When the scheme matures, the beneficiary, i.e., the girl child, gets the pay. The Sukanya Samriddhi Account reaches its maturity when the account holder reaches 21. However, a maximum of 50% of the account balance can be withdrawn only to finance her higher education.
- A minor is an individual who has not attained the age of 18 years.
- A minor cannot invest in India on his account. However, they can do so through a natural guardian (parent) or court-appointed guardian.
- Upon attaining the majority, the minor’s bank account must be changed, and he must have a cheque book requiring his signature.
- A minor can invest in stocks and mutual funds in India. However, the accounts will be operated by the guardian.
- Other avenues that allow investment in the name of the minor are Sovereign Gold Bonds, digital gold, PPF, and Sukanya Sammriddhi Account.
Frequently Asked Questions
- Can a minor have a Demat account?
Yes, a minor can have a Demat account. However, the guardian shall operate the account until the child becomes a major.
- Can a minor be a joint account holder in a Mutual Fund?
A minor cannot be a joint account holder in a Mutual Fund.
- What are the two primary documents required for investing in the name of the minor?
Firstly, a document showing proof of age and a document proves the relationship between the minor and the guardian.