Hello Readers!
Parents are responsible for making their children learn about every good thing and bad things, make them understand the good and bad manners, teach them the lessons of life and many things. Likewise, they are also responsible to make their children learn about how to manage their money and finances.
It is a must for a parent to talk about money management with their minors. Instead of a forced conversation parents must try to make their child understand the benefits of money management just like other important things like about the benefits of healthy eating and exercise. A part of this learning is also understanding wealth creation through efficient allocation of money.
Simply let your children invest and let them learn about money management and wealth creation.
You must be thinking that how and where a minor can invest. Well, mutual funds offer the most flexible and convenient form of investment, but can a minor invest in mutual funds? Read to know.
Children Investing In MF’s
Children being a minor that is below 18 years in age are not compatible with KYC registration (very first step of any investment) but they can invest in mutual funds through a parent or a guardian. Yes, it means that the investment in a mutual fund scheme will be made in the child’s name but with representation from the parent or a guardian. The child will be the account holder and investment owner, however, the parent or the guardian will be responsible to sign off on transactions.
The situation will continue till the child turns 18 years in age, after this the status of mutual fund investment from minor account holder will be changed to the adult account holder, and this can be done sending an official communication to the fund house. Till that the parent or guardian will have all the legal responsibilities regarding the investment, also any tax arising from redemption or receipt of dividends will have to be paid by the parent/guardian. The minor will not be responsible for that.
Where Can A Minor Invest?
Mutual fund investment is the most flexible and convenient instrument to invest your money, for minors, it has mutual fund schemes named as ‘children’s gift fund’ or ‘childcare plan’ and many other funds structured for their investment. However, investment for children’s in not concentrated on these kinds of funds, in fact, children can invest in any mutual fund scheme available to an adult as well.
The mutual fund scheme structured especially for minors to invest in a mix of equity and fixed income securities with primary exposure of 60%-70% in equity stocks. In general, it is advised when you invest in a child’s name, you must choose a hybrid portfolio of equity and debt securities if they have a few years in hand before they need money. In case if they have 7-10 years before the money is to be used, it's better to choose a good quality pure equity scheme as the risk-return tradeoff over this long term duration is better.
Pick out a fund with a good track record of performance consistency and let your child invest in this regularly through SIP (Systematic Investment Plan). On this birthday of your child gift them a SIP in mutual funds and make them learn to invest regularly. Remember, starting their investment journey early in life is preparing your child for what the future holds.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).