Can A Minor Invest In Mutual Funds?

Mumbai, November 14: A large number of certified financial planners are with the view that people who seek advice on financial matters come to them with a frequently asked question: Can a minor invest in equities or equity related products? Financial advisors we spoke to say minors can invest in equities but they cannot make a direct investment in the stock market. They have to take a detour or in simple terms they need to invest in equity market by investing in mutual funds.

Karan Gupta, Wealth Manager, Sykes & Ray Equities, agrees it is a frequently asked question. “Since an individual under the age of 18 years can only open a demat account where stocks are needed to be transferred off-market as a gift, and not a trading account, he or she can access the equity market easily through the indirect route of mutual funds,” Gupta explained.

Parents have key role to play

Thus, other important points to be noted while opening an account to invest in the minor’s name are that parents of the minor need to initiate the minor’s investment. “The state takes the order of the child in case where the child loses his parents without any appointed guardian. It is advisable for parents should appoint up-to two guardians along with two witnesses, where the witnesses should not be a guardian or the spouse of the guardian,” Gupta said. In case there are no parents to initiate the investments, it would be needed for the court appointed guardian to conduct the same.

No investment in joint name

Secondly, the investment made in the minor’s name cannot be in a joint name, thus the guardian, though making the investments cannot become a part owner. The guardian also loses all power to operate the account once the minor attains the age of 18. Further, no nominee can be appointed in such a case. Thus it’s very important to channelise the investment towards a well-defined personal financial goal.

Documents needed

Not many people are aware, but it is actually very simple to initiate investments in a minor’s name. “The only documents needed are the birth certificate of the minor where we shall be acquiring the minor’s date of birth. This can also be got from the passport if available,” Gupta said. Apart from this, the relationship of the minor with the guardian is to be provided while making the investment.