Are you investing in mutual funds for your minor child? Know these rules set by SEBI | Jobs Vox

If your minor children are planning to invest in mutual funds, you should be aware of the rules laid down by the Securities Exchange Board of India (SEBI) in this direction. You cannot just choose mutual fund investment and invest using your bank account. To invest in your dependent child’s name, you must first open a bank account in his name. This is because SEBI requires mutual fund houses to accept payments for mutual fund investments only from bank accounts or joint accounts that the minor may maintain with the guardian. According to a circular issued by SEBI, “cheques, demand drafts etc. will be accepted only from the above mentioned bank accounts.”

Pratibha Girish, Founder; Anus personal finance solutions, “This helps because a minor can actually invest instead of trying to plan taxes. It is a step in the right direction as investors think twice before buying the children’s investment. This is not the intended benefit, but it helps.

KYC details when the minor reaches 18 years of age

After the minor attains 18 years of age, the fund houses should trace their Know Your Customer (KYC) details and ensure that the same is included in the mutual fund documents. This means that no further transactions will be allowed unless the small investor submits necessary documents to prove that he is a principal as per his birth certificate.

Investing in mutual funds for minors ensures that they have an accumulated corpus when they turn 18. This also explains why SEBI has mandated asset management companies (AMCs) to create a mechanism to stop disinvestment through Strategic Investment Plans (SIPs) or gradual withdrawal through Strategic Transfer Plans (STPs) and Strategic Withdrawal Plans (SWPs). This includes a standing order that when the minor reaches majority, all investments and funds must be frozen until the minor submits all documents seeking conversion from “minor” to “major”.

The request to transfer any investment portfolio takes time. That is why AMCs have been given standing instructions to carry out an image-based process where the claimant is either a nominee or a joint owner in the investor’s portfolio. The regulator has directed AMCs to start an independent central help desk to provide relevant information to small investors.

Redemption is stopped until the transfer

A minor must first search for a complete set of episodes before hitting the “Redeem” button.