Can I Invest for My Child Who Is a Minor?
Yes. A minor can hold mutual fund investments in India through a parent or legal guardian.
The main thing is, the minor is the sole holder. The parent does not become joint holder just because they are managing the investments.
A court-appointed legal guardian can also act as the guardian.
For the sake of oversimplification:
Minor child → owner of the mutual fund units
Parent/legal guardian → operates the folio while the child is a minor
This means that if a parent in Dharamshala starts a SIP in their child’s name. The child is the unit holder even though the parent is the one investing the actual money.
However, things can shake up slightly when the child turns 18, which we will discuss below.
But before proceeding further in this discussion, the most basic question would be this:
Should the investment be in your name or in your child’s name?
In both the cases the parent will be the one putting in the money, but the answer matters because a mutual fund investment held in a minor’s name works differently from one held by an adult.
As we just discussed, minor can be the sole holder of a mutual fund folio, while a parent or eligible legal guardian operates the account until the child becomes a major. Once the child turns 18, the structure changes and the child has to complete the required formalities to operate the investment independently.
When investors approach as at the Steadrow Capitals, the most common two goals for them are retirement and child education. And often time we have noticed investors in Dharamshala prioritizing child education investment more than they do for their own retirement. And it is safe to assume that parents in other parts of India is no different. Therefore, For parents planning for their child’s higher education, understanding this structure before starting a SIP can save a lot of confusion later.
This guide explains how a SIP for a minor works, the benefits and limitations of investing in the child’s name, the difference between investing in the parent’s name and the child’s name, the documents required, what happens at 18, and how taxation works. We have tried to basically cover everything that investor should know before starting to invest for his minor child.
What Are the Benefits of Investing for a Minor Child?
Just like any other thing, before starting, we should know if the benefits are even worth it or not.
The potential benefits come mainly from how the investment is structured and managed, not from the returns it will gain in future. This might seem like negligible benefits but below we will discuss how they create real impact.
1. Creates financial discipline
This is the modern version of keeping a separate piggy bank for separate desires. A separate investment for a child can make the parent’s financial commitment more specific and deliberate. You may not consider it important for yourself because you might be a disciplined investor but still these can help you further.
So the small but effective change would be :
“I am investing ₹10,000 every month.”
Turns into :
“I am building a corpus for my child’s education.”
That change in perspective matters a lot when it comes to long term investment.
A defined purpose can make it easier to continue investing even when other family expenses compete for the same money. Which is sure to happen sooner or later.
2. Keeps the child's investment separate
As mentioned earlier, investors want to think they have only two goals and one of them is child education. But that is not the reality. At steadrow capitals, we have encountered investors who start investing with only one or two goals but as the time goes on, their salary increases, their desires also increase. And that results to several financial goals running at the same time.
There may be retirement, a home purchase, business requirements, perhaps travel, emergency reserves and other expenses.
If the child’s investment is maintained separately, it becomes easier to see exactly how much has been accumulated for that particular goal. And if you have been investing for a while, with multiple goals, you would easily understand this.
This separation can make the money less tempting to use for unrelated expenses. And we are all humans after all.
3. It can help reduce emotional decisions
Market falls are part of investing. An investment treated as the parent’s general wealth, can be the first casualty of a market correction.
A clearly defined investment can provide a behavioural anchor: This money has a specific purpose (child education) and a timeline (when he is 18).
Obviously that does not remove market risk. It simply helps the investor remember why the investment was started in the first place. We all need that slight knock on the forehead sometimes.
4. It gives the child a connection with investing
A child who grows up knowing that an investment exists for their future can gradually develop an understanding of how money works.
One of our long term investors from Kangra, came to our office with his 8 years old daughter. He wanted her to have a feel for the investment and money. Every parent wants that. Now it is impossible to teach an 8 years old all about investment but there has to be a start. One excellent start was this when we discussed how she had her own mutual funds holding in her name which is meant for her higher education. That gave her a connection with savings and investments. Which could become a base for her future investment approach.
The idea is to introduce the concepts of:
- Saving
- Investing
- Compounding
- Ownership
- Financial responsibility
By the time the child becomes an adult, the investment itself can become a practical starting point for learning about personal finance.
5. Goal tracking becomes easier
Suppose a parent wants to create a corpus specifically for higher education. A separate folio makes it much easier to track the investment against that goal. Even more so when it is specifically under the name of that goal’s direct beneficiary.
Although, this can be considered just an add on but it is really helpful to keep things sorted in terms of managing and tracking multiple investments.
6. Slightly different tax implication
The tax is the responsibility of the parent only as long as the child is minor. As soon as the child becomes 18+, the tax becomes his own responsibility. This is interesting because the investment is coming from one source and being divided into two. And hence using two separate limits.
It is very easy to misunderstand this as a simple tax-saving strategy. But there are a few things to note.
While a child is a minor, income that is required to be clubbed under the applicable provisions is generally included in the income of the parent under Section 64(1A), subject to the exceptions provided by law. Section 10(32) provides an exemption of up to ₹1,500 per minor child for income that is clubbed with the parent’s income, subject to the applicable conditions.
Once the child becomes a major, their tax position changes because they are then assessed in their own capacity. And the child will be the one who will be responsible for the tax obligations.
So the tax benefit of a minor investment should not be exaggerated. The ownership structure has tax consequences, but investing in a child’s name does not automatically mean lower tax.
Parent's Name vs Minor's Name: Which Is Better?
These are the few factors that you need to consider in each case
| Factor | Investment in Parent's Name | Investment in Minor's Name |
| • Ownership Control | Parent owns the investment Parent retains control | Minor owns the investment Guardian operates it until majority |
| • Tax | Tax treatment is based on the parent's position | Minor's income may be subject to applicable clubbing provisions while the child is a minor |
| • Flexibility | Higher. Parent can use the investment for different goals | Lower. Investment is owned by the child |
| • Goal Link | Goal can be changed more easily | Stronger connection with the child's financial goal |
| • At 18 | No minor-to-major transition | Child must complete the required status-change process |
| • Redemption | Proceeds go according to the parent's verified bank details | Redemption proceeds must go to the minor's verified bank account under the applicable rules |
In simple way,
Invest in your name if: You want maximum flexibility and that is a deal breaker for you.
Invest in the child’s name if: You want to create a corpus that is specifically owned by the child and kept totally separate from your own investments.
Do not choose the minor structure simply because you expect a tax advantage.
The ownership and purpose of the money should come first. Tax treatment should then be considered as part of that decision.
How Does a SIP for a Minor Actually Start?
The process is not very difficult, but there is more documentation involved than with an ordinary adult folio. It is not too much but there are a few differences.
The minor is registered as the sole unit holder and the parent or eligible legal guardian is recorded as the guardian. Below are the
Documents required
The exact document checklist can vary depending on the AMC/RTA, but the core documentation generally includes:
- Proof of the minor’s date of birth, such as a birth certificate or passport.
- Proof of the relationship between the minor and natural guardian, where required.
- Guardian’s PAN.
- Guardian’s KYC details/status.
- Bank account details required for the minor’s folio and future transactions.
SEBI/AMFI documentation recognises documents such as the minor’s birth certificate or passport as proof of date of birth, along with documents establishing the guardian relationship where necessary.
And the bank account:
A payment for the investment can come from the minor’s account, parent/legal guardian’s account. But redemption proceeds are required to go to the verified bank account of the minor only.
So if a parent is planning a minor folio, it is sensible to make sure the child’s banking arrangements are in place rather than waiting until the first redemption is required.
Because on the surface this might not look like something worth noting but it might become an issue at times. One of our clients from Kotwali bazaar, Dharamshala decided to start a minor account for his son. Everything went smoothly for a while and then due to personal circumstances, it was decided by him that the goal of child education will be funded by other means and he needs to withdraw his minor son’s investments. He assumed the investment will simply go to his bank account since he was investing from that particular account only.
We guided him towards opening the bank account for his child and then he went on to proceed with the rest of the formalities.
What Happens When the Child Turns 18?
This is where investing in a minor’s name becomes slightly different from investing in your own name.
The parent can not continue operating the investment after the child turns 18.
When the minor becomes an adult, the folio is frozen for operation by the guardian until the required status-change formalities are completed. Existing systematic instructions such as SIP, STP and SWP are only registered up to the date the minor attains majority, even if the original instruction had a later end date. This is crucial to know. One can not assume this investment will keep on going like any other SIP. It has a big transition point when the child turns 18.
Requirements after 18
As of writing this article, current SEBI/AMFI documentation requires the major to provide the prescribed status-change request and updated information such as:
- Updated KYC details
- PAN, where required
- Updated bank account details
- Cancelled cheque or other accepted bank proof
- Signature/specimen signature authentication
- Other documents prescribed by the AMC/RTA
SEBI’s current disclosures specifically require updated KYC and bank details.
What happens to the SIP?
The SIP does not continue under the parent’s control.
The child needs to complete the required status-change process before operating the folio in their own capacity. And once that is done, he or she can manage his mutual fund portfolio on his own capacity.
Parents should take note of this and make sure to plan this along with your child’s 18th birthday party.
Taxation When You Invest for Your Minor Child
Taxation is probably the area where the most misconceptions exist. It is an interesting change but worth noting. The fact that the mutual fund is held in the child’s name does not automatically mean the child’s tax slab applies while the child is a minor.
How does clubbing of income work?
Under the applicable minor-child clubbing provisions, taxable income of a minor child is generally included in the income of the parent whose total income is higher, subject to the rules and exceptions. If the parents’ marriage does not subsist, the rules provide for clubbing with the parent who maintains the minor child.
Section 10(32) provides an exemption of up to ₹1,500 per minor child for income that is clubbed with the parent’s income, subject to the applicable conditions.
The investment is owned by the child, but applicable minor-income clubbing provisions can still result in the income being taxed in the parent’s hands while the child is a minor.
But this was for the case when the investments are redeemed before the child turns 18.
What happens to tax after the child turns 18?
Once the child becomes a major, their income is no longer dealt with under the minor-child clubbing provision in the same way. Your little child is old enough not. The child becomes the investor in their own capacity and their own tax position applies. AMFI’s current SAI also states that once the child attains majority, the tax liability is on the child.
This is why a long-term minor investment should be looked at over the entire period, not just at the tax treatment on the day the SIP begins.
You might have guessed that at 18 the child will probably not have any other income. That leaves the whole tax limit to himself and his mutual funds. It is important because the source of investment was one but now you have two tax limits. For other mutual funds, the limit of the parent, and for the minor child’s investment, he has his own tax limit.
Anmol Thakur from Dari, dharamshala started with us to start SIP for his two minor sons. Soon he accumulated good amount in those investments but one day a sudden wave of worry came to him. Who will carry the burden of tax on this ? he asked. He was feeling guilty that he did not plan that while starting investment. But since he was investing with Steadrow capitals, all the factors of taxation was already looked at. We explained to him thoroughly about the tax implications. And when he found out that the tax implications to his sons will not be much, since they won’t have their own income at 18. That brings his practical tax obligation to a small amount.
What Are the Risks of Investing in a Minor's Name?
Investing in a minor’s name can be useful, but it comes with some risks as well.
1. Additional paperwork
As we have already discussed above. The additional paperwork is not much but still, compared with an ordinary adult investment, a minor folio requires additional documentation.
Then, when the child turns 18, another set of formalities is required. It is manageable, but parents should know about it.
2. The child needs to be financially mature
Perhaps, this may become the most important issue after years of investing.
A SIP started when a child is five could potentially create a sizeable corpus by the time they are 18.
But at 18, the child becomes the person who will operate the investment.
Parents therefore have 18 years to do more than build the corpus for that child.
They also have time to teach the child how to handle it. Which, in the long run is much more important.
A child who understands why the investment exists is in a much better position to make sensible decisions with it. This is not a financial or investment related limitation but while dealing with investors across Dharamshala, Kangra, Palampur and beyond, we have noticed that this is as important as the investment decisions.
3. The money is less flexible
If the investment is held in the parent’s name, circumstances can change and the parent can potentially redirect the money towards another family objective. If the investment is in the child’s name, the ownership is tied to the child. This was a positive when we were discussing it as a separate goal but it equally becomes an issue when you are about to dilute that goal.
That can be exactly what the parent wants.
It can also become a limitation if the family’s circumstances change.
4. The 18-year transition cannot be ignored
This is a practical risk rather than an investment risk.
The folio does not simply remain under the parent’s control after the child becomes a major.
The required status-change process has to be completed, and until that happens the folio remains frozen for transactions by the guardian.
Parents should therefore keep the child’s PAN, bank account and KYC requirements in mind well before the 18th birthday. As mentioned earlier, planning these things is as important as planning his 18th birthday party.
A Note for Parents in Dharamshala
For a parent in Dharamshala, investing for a child may mean preparing for a financial goal that is many years away and potentially outside the family’s current surroundings. We understand it well that the people in Dharamshala take planning seriously. They tend to start early and stay consistent when it comes to goals such as child education.
As a parent you are almost certain that higher education may eventually mean expenses in Chandigarh, Delhi, Bengaluru, Mumbai or perhaps even another country. Most of the kids who do not go to Dharamshala degree college, eventually go to other cities for higher studies. And the amount required years from now can also be very different from today’s cost.
That makes it useful to think about the child’s investment as a long-term financial goal, rather than simply another SIP.
Once your goal is set, the investment through minor’s account will only give you additional supporting pushes that will help you stay consistent through the time horizon.
At Steadrow Capitals, we help parents in Dharamshala look at the complete picture first, the goal, time horizon, investment structure, ownership and the amount required. Only then do we look at suitable mutual fund options out of thousands of options.
If you’re unsure whether the investment should be in your name or your child’s name, or want to understand how to structure the investment, you can speak with us.
FAQs About SIPs and Mutual Funds for Minor Children
Can I start a SIP in my minor child's name?
Yes. A minor can be the sole holder of a mutual fund folio, with a parent or legal guardian operating the account until the child attains majority.
Can a minor and parent be joint holders in a mutual fund?
No. The minor is the sole holder of the folio. A parent or eligible legal guardian acts as guardian rather than joint holder.
Who owns a mutual fund investment made in a minor's name?
The minor owns the investment. The parent or legal guardian operates the folio on the minor’s behalf until the child becomes a major.
Can my bank account be used to pay for my child's SIP?
Yes. SEBI’s current framework permits investment payments from the minor’s bank account, parent/legal guardian’s bank account, or a permitted joint account involving the minor and parent/legal guardian. Redemption proceeds, however, must be credited to the minor’s verified bank account.
What happens to a minor's mutual fund when they turn 18?
The folio is frozen for operation by the guardian, and the child must complete the prescribed process to change the status from minor to major before transactions can continue.
Does the SIP automatically continue after the child turns 18?
No. Systematic instructions in a minor folio are registered only up to the date the minor attains majority. The child needs to complete the required status-change formalities before operating the folio in their own capacity.
Who will pay the tax for the mutual funds in minor’s name?
The investments and the tax obligations that come with it will be the responsibility of the parent until the child turns 18. After that the child will become a normal mutual fund holder and will have to take care of his tax obligations. One advantage he can get is that he will probably not have any other income at 18 so his tax obligation will be small.
Is it better to invest in my name or my child's name?
It depends on ownership and flexibility. Investing in the parent’s name generally provides greater flexibility, while investing in the child’s name creates direct ownership for the child and keeps the investment more clearly separated from the parent’s own portfolio.
Can I redeem a mutual fund held in my minor child's name?
The guardian can operate the minor’s folio while the child is a minor. But redemption proceeds from a minor folio are required to be credited to the minor’s verified bank account.
Can grandparents invest for a minor?
The mutual fund folio must have an eligible guardian, generally a natural parent or a court-appointed legal guardian. A grandparent cannot simply act as guardian unless they meet the applicable legal requirements.
Disclaimer: The details shared in this article are intended strictly for educational and informational purposes and should not be construed as financial, legal, or investment advice. Mutual fund investments carry inherent market risks; please review all scheme-related documents thoroughly before committing capital. Mutual fund investments made through a mutual fund distributor are generally through Regular Plans, where the distributor may receive commission from the AMC. Investors should understand the applicable costs and the difference between Regular and Direct Plans before investing. The details provided are compiled entirely at the discretion of the owner, reflecting general market consensus and available public data. This article does not hold the author, owner, or any affiliated parties financially or legally liable for your investment choices or potential losses. Past performance of any Asset Management Company (AMC) or specific fund does not guarantee future results. Investors are strongly encouraged to consult a certified financial advisor or wealth distributor to assess their unique financial objectives and risk appetite prior to investing.
Holding NISM certifications in Series V-A, XXI-A (PMS) and XIII (Common Derivatives), Abhishek is a Partner at Steadrow Capitals. With over a decade of hands-on experience in the equity market, he has successfully sailed through different market cycles to bring deep, practical insight to his wealth management approach.