Parents these days are aware about how important investing for the child’s future in high-return generating avenues is, so that the money grows with them. Mutual fund is one avenue gaining popularity as a tool for long-term goals such as children’s future.

Mutual fund investments can be made in the name of a minor child (under the age of 18) by the parents or the legal guardian. To eliminate ambiguity when investing in mutual funds in the name of a minor, AMFI has prescribed uniform norms.

The norms describe the following aspects:

• Investment procedure
• Procedure in case of change in guardian
• Steps to be taken when the child attains majority

We will be looking at each of it in detail…

1) Investment procedure

The child on behalf of whom the investment is being made must be the sole holder of the account. There should not be any joint accounts with the minor, either as the first holder or as joint holder. Investment can be made either by a natural guardian (father, mother) or a court-appointed legal guardian.

Parent/guardian can register for standing instructions like SIP, SWP, and STP transactions. However, it will be executed only till prior to the date of the child attaining majority, even if the instruction is for a period beyond that.

Any of the following documents can be submitted to open the account on behalf of minor:

• Birth certificate of the minor
• School leaving certificate / Mark sheet issued by Higher Secondary Board of respective states, ICSE, CBSE, etc.
• Passport of the minor
• Any other suitable proof evidencing the date of birth of the minor

In case of investment by a natural guardian, one has to submit a document evidencing the relationship with the minor if the same is not available as part of the documents submitted as in the points above.

In case of investment by a court-appointed legal guardian, a copy of the court order in respect of the appointment of the Legal Guardian will be required.

2) Procedure in case of change in guardian

As per AMFI norms, when there is a change of guardian of the minor unitholder, either due to mutual consent between the parents or due to demise of the existing guardian, the following documents are required:

• An application for change in guardian of the minor unitholder in a standard / prescribed form along with PAN card copy and KYC acknowledgement of the new guardian and a cancelled cheque evidencing the change of guardian in respect of the minor’s registered bank account with the new guardian’s name
• A consent letter from existing guardian or court order for new guardian, in case the existing guardian is alive
• A copy of the death certificate of the deceased guardian, where applicable, duly attested by a Notary Public or a Judicial Magistrate First Class (JMFC), or a Gazetted Officer, or by authorised official of the AMC after verifying the original
• The new guardian must be a natural guardian (father or mother) or a court-appointed legal guardian. The new guardian’s name & signature should have been registered as the guardian with the minor’s bank account
• In case of change in guardian with mutual consent between the parents, the signature of the new guardian shall be duly attested by the existing guardian whose signature is registered in the records of the mutual fund

3) Steps to be taken when the child attains majority

The parent/guardian can only operate the minor’s account until he/she attains the age of majority. Once the child turns 18, he/she needs to submit an application for change in status from Minor to Major in a prescribed form (MAM form) along with the prescribed documents. Unless this process is completed, no financial or non-financial transaction can be undertaken. In short, the minor’s account shall be frozen for operation by the guardian on the day the minor attains the age of majority.

However, the account holder will continue to receive dividend payment which will be credited to the unitholder’s registered bank account or reinvested in the folio, as the case may be.

Before submitting the MAM application form for change in status from minor to major, the unitholder should:

• Apply for PAN & obtain a PAN card
• Complete the KYC process
• Change his/her status in existing bank account from minor to major or open a new bank account immediately upon becoming a major and procure a new cheque book with his/her name pre-printed on it

After fulfilling the above steps, the applicant has to submit the following requisite documents:

• Duly filled MAM form
• Copy of PAN Card of the applicant
• KYC acknowledgment or a duly competed KYC form.
• A cancelled cheque leaf with the applicant’s name pre-printed or the applicant’s latest Bank Statement/Passbook.
• Signature attestation by the bankers in Annexure 1 (if the signature of the applicant is not attested by the guardian or a Notary or a JMFC in the MAM form)
• Nomination Form
• A fresh SIP, STP, SWP mandate in the prescribed form (in order to continue the SIP, STP, SWP, if applicable.)

Once the child turns major, the applicable taxes arising from income and gains of the portfolio will have to be borne by him/her and can no longer be clubbed under the parent’s income.

Mutual fund investment is an easy and convenient way to create a sizeable for corpus for your children’s future. But ensure that adhere to the norms as specified above for a hassle-free investment journey.

Invest in worthy schemes that have high growth potential and can reward you well for the risk undertaken.

This article first appeared on PersonalFN here