Investing in mutual funds under a minor child’s name is steadily gaining popularity among parents in India. Many families now prefer this route to systematically build a financial corpus for long-term goals such as higher education, overseas studies, or future milestones like marriage. While the concept looks attractive, it is important to clearly understand how safe it is, what rules apply, and how taxation works before taking this step.

How Does Mutual Fund Investment in a Minor’s Name Work?

All Asset Management Companies (AMCs) in India allow mutual fund investments in the name of a minor. In such cases, the child is the sole holder of the folio, and joint holding is not permitted. Until the child turns 18, the account is operated by a parent or a court-appointed legal guardian.

The guardian manages all investment-related decisions, including fund selection, SIP setup, switches, and redemptions. Once the child becomes a major, the entire control of the investment automatically shifts to them.

Is Investing in a Minor’s Name Safe?

From a legal and regulatory standpoint, investing in mutual funds for a minor is considered safe. These investments are governed by SEBI regulations, and the mutual fund units are held securely in the child’s name.

However, parents must keep one crucial point in mind: after the age of 18, parents lose all control over the investment. The child gains full authority to continue, redeem, or modify the investments. Therefore, while the structure is safe, the decision should be based on trust, financial education, and long-term planning.

Documents Required to Start Investment

To open a mutual fund folio in a minor’s name, the following documents are generally required:

• Proof of age of the child (birth certificate, passport, etc.)
• Proof of relationship between the child and guardian
• Guardian’s KYC compliance
• Bank account details (either the child’s or the guardian’s account)

These documents are usually submitted at the time of opening the folio or during the first investment.

Key Advantages of Investing in a Child’s Name

One of the biggest advantages is goal-based discipline. Since the investment is earmarked for the child, parents are less likely to divert the money for other expenses. Long investment horizons also allow the power of compounding to work effectively.

Additionally, once the child turns 18, the investment may offer tax efficiency, as the child is treated as a separate taxpayer.

Potential Risks and Drawbacks

The primary concern for many parents is the loss of control after the child becomes an adult. There is always a possibility that the child may withdraw the funds early or use the money for purposes other than what was originally planned.

Another aspect is market risk. Mutual funds are market-linked instruments, so returns are not guaranteed and can fluctuate over time.

What Transactions Are Allowed in a Minor’s Account?

Until the child turns 18, the guardian can carry out:

• Lump-sum investments
• SIPs
• STPs and switches
• Redemptions

All transactions are done on behalf of the minor by the guardian.

What Happens When the Child Turns 18?

Once the child becomes a major:

• All ongoing SIPs and STPs are automatically stopped
• The guardian’s authority ends
• The folio is temporarily frozen

To resume transactions, the account must be converted from “minor” to “major” status.

How Is the Account Reactivated After 18?

The child must submit a request to update the folio status along with:

• Fresh KYC documents
• Identity and address proof
• Signature update form

After this process, the account becomes fully operational under the child’s control.

Tax Rules: Before and After the Child Turns 18

If the investment is redeemed before the child turns 18, any capital gains are clubbed with the parent’s income and taxed according to the parent’s tax slab.

After turning 18, the child is considered an independent taxpayer. Since most young adults have limited income, they can benefit from:

• Basic exemption limit under the new tax regime
• Annual LTCG exemption on equity mutual funds

This makes long-term investing in a minor’s name potentially tax-efficient.

Final Verdict

Investing in mutual funds under a minor’s name can be a smart long-term strategy if parents are comfortable with the transfer of control at adulthood. With proper planning, financial education, and disciplined investing, this approach can help secure a child’s financial future while also offering tax advantages.