It would be interesting news for several investors on how conveniently investments can be made in mutual funds on behalf of minors. Although this is an alternative that may offer better returns on the initial investment sum, it is crucial to understand the nuances of the procedure and familiarize oneself with a few guidelines before making a plunge in this investment venture. The important guidelines that an investor must remember while investing in mutual funds on behalf of a minor are:
1) The guardian, as mentioned in the folio, who represents the minor must be a natural guardian, i.e., the mother or father, or must be a court-appointed guardian by law.
2) The date of birth of the minor must be mentioned clearly in the application form, along with photocopies of relevant documents like birth certificate, passport and other verifiable records.
3) Preferably, the guardian of the minor can opt to do a Systematic Investment Plan in the name of the child.
4) In such a scenario, it is important to remember that the mutual fund, until the minor accomplishes the age of a major, or for a period greater than that, will honor all the instructions as mentioned in the Systematic Investment Plan (SIP), or Systematic Withdrawal Plan (SWP), or Systematic Transfer Plan (STP) that have been mentioned in the child’s folio.
5) The guardian has complete authority to control the account until the minor accomplishes the age of a major.
6) Before the minor becomes a major, the mutual fund will send a notice to the registered address of the guardian, asking him to submit an application form, in order to change the status of the minor’s account to that of a major.
7) All instructions that were held valid in terms of the SIP, SWP or the STP will no longer hold authority once the minor turns into a major.
8) Once the minor becomes a major, the account will be frozen on such a day, in order to restrict all further operations by the major.
9) No transactions can be carried out after this date until and unless all documents have been submitted and are duly verified by the mutual funds.
10) In order to successfully initiate the procedure and change the status, a service request form along with the name of the major, the KYC acknowledgement, and the signature of the minor attested by a bank manager are required.
The chances provided by the Indian market to facilitate investing in your child’s future from an early age is an opportunity to be grasped. To step aside from the traditional form of investments like the National Savings Scheme Certificates or the Fixed Deposits etc., and to invest in the profits made by companies, guarantees a healthy financial growth, not only in your child’s future but also in the development of the country. Seeing it as a lucrative opportunity, there are some hindrances in the road to investment which can become major speed brakes to maximize your returns, the main one being – lack of knowledge about the market.
You obviously do not want to lose out on your hard earned earnings for your loved one by investing in the right place at the wrong time or by investing in the wrong place at the right time. In the eventuality, suffering with a debt of an education loan or personal loans etc., can burden your finances. So, if you are a first time investor, and do not have much idea of how the markets operate and how to react to booms or busts, approach a financial advisor. A financial advisor is a person who has the experience of understanding the market and provides you with solutions as to how much and in what areas your money can achieve the desired returns. Although, decisions may not always be 100% right, some degree of shock should be expected.