Investing for a child at an early age can help parents build a fund for future expenses such as higher education, healthcare or other financial goals. In India, parents and legal guardians can invest in mutual funds in a minor child’s name. However, the process involves specific rules related to account operation, taxation, bank accounts and ownership.
What Is a Mutual Fund Minor Account?
A minor mutual fund account is a folio opened in the name of a child below 18 years of age. The child is the sole beneficiary and owner of the investment, while a parent or legally appointed guardian operates the account until the child becomes an adult.
A minor cannot independently operate the folio, and joint holders are not permitted in a minor’s mutual fund account.
Documents Required to Open a Minor Mutual Fund Account
Parents or legal guardians generally need the following documents to open a mutual fund folio in a minor’s name:
- Minor’s age proof: Birth certificate, passport or other accepted proof of age.
- Guardian’s PAN: The parent or legal guardian’s PAN is used for the applicable KYC process.
- Guardian’s KYC: The guardian must complete the required KYC formalities.
- Relationship proof: A document establishing the relationship between the minor and guardian. A court order may be required for a court-appointed legal guardian.
- Bank account details: Verified bank account information for investment and redemption transactions.
A minor’s PAN is generally not required at the time of opening the folio under the applicable process. However, the child will need their own PAN and KYC when converting the account to a major folio at 18.
How Can Parents Invest in a Minor’s Mutual Fund Account?
Parents can invest through a lump sum or a Systematic Investment Plan (SIP), subject to the mutual fund house’s requirements.
Investments may be funded from a verified bank account belonging to the minor, the registered parent or guardian, or an eligible joint account, depending on the applicable fund-house process. Third-party contributions are subject to the mutual fund’s requirements and applicable regulations.
Redemption proceeds, however, must be credited to a verified bank account in which the minor is a holder, either individually or jointly with the registered guardian. They cannot be paid into a parent’s standalone bank account.
Parents should confirm the accepted payment and bank-account requirements with the relevant AMC or mutual fund platform before investing.
How Much Can an SIP Grow Over 18 Years?
Starting early gives investments more time to benefit from compounding. For example, if a parent invests ₹5,000 every month from a child’s birth until the child turns 18, the total investment would be ₹10.8 lakh.
Assuming an illustrative annualised return of 10%, compounded monthly, the investment could grow to approximately ₹30 lakh over 18 years. This is only an illustration. Mutual fund returns are market-linked and are not guaranteed.
Parents can use the SJS Finserve SIP calculator to estimate potential investment outcomes:
https://sjsfinserve.com/calculators/
Which Mutual Fund Should Parents Choose?
The choice of mutual fund should depend on the investment horizon, financial goal and ability to tolerate market fluctuations.
Equity funds may be considered for long-term goals, while debt funds may suit investors seeking relatively lower volatility. Hybrid funds combine equity and debt, while index funds aim to track a market index.
As the financial goal approaches, parents may gradually reduce exposure to market-linked investments to manage the risk of a market downturn close to the withdrawal date.
For more information, read:
Types of Mutual Funds in India: https://sjsfinserve.com/blog/types-of-mutual-funds-in-india-complete-guide-to-mutual-fund-categories/
Large-Cap vs Mid-Cap vs Small-Cap vs Flexi-Cap Funds: https://sjsfinserve.com/blog/large-cap-vs-mid-cap-vs-small-cap-vs-flexi-cap-funds/
Parents should also understand the costs associated with mutual funds, including expense ratios and exit loads.
Mutual Fund Costs Explained: https://sjsfinserve.com/blog/mutual-fund-costs-explained-expense-ratio-exit-load-and-other-charges/
Taxation of Mutual Funds Held in a Minor’s Name
Income earned from investments made in a minor child’s name is generally clubbed with the income of the parent whose income is higher, subject to applicable tax provisions. Certain exceptions may apply, such as income earned by a minor through personal skill, talent or work, and income of a minor with a qualifying disability.
Under the Income-tax Act, 1961, Section 10(32) provided an exemption of up to ₹1,500 per minor child per financial year for eligible clubbed income. However, the Income-tax Act, 2025 came into effect on 1 April 2026. The corresponding provisions and their applicability should be verified before relying on this exemption for FY 2026-27.
Capital gains taxation depends on the type of mutual fund and the applicable tax rules. Under the previous provisions of the Income-tax Act, 1961, equity-oriented mutual funds were generally subject to 20% short-term capital gains tax and 12.5% long-term capital gains tax on eligible gains exceeding ₹1.25 lakh. These rates should not be assumed to apply unchanged under the new Act.
For more details on debt mutual fund taxation, refer to:
https://sjsfinserve.com/blog/debt-mutual-fund-taxation-in-india-rules-rates-examples/
Investors should consult a qualified tax professional for the applicable tax treatment in the relevant financial year.
Other Investment Options for Children
Apart from mutual funds, parents may consider other investment options based on their financial goals and risk preferences.
- Public Provident Fund (PPF): A government-backed savings option with a long investment horizon.
- Sukanya Samriddhi Yojana (SSY): A government-backed savings scheme for eligible girl children.
- NPS Vatsalya: A pension-oriented scheme designed for minors.
- Gold: Can provide diversification, though returns and risks vary depending on the investment route.
- Stocks: Investments may be held in a minor’s Demat account, subject to applicable restrictions and account-operating rules.
Each option has different features, liquidity, taxation and risk characteristics. Parents should evaluate them against the intended financial goal.
What Happens When a Minor Turns 18?
When the child turns 18, the minor mutual fund folio cannot continue to be operated by the guardian as before. The account must be converted from a minor folio to a major folio through the prescribed Minor-to-Major (MAM) process.
During this transition, existing SIPs and debit mandates are suspended or frozen until the conversion is completed.
The new adult investor generally needs to submit:
- Their own PAN and completed KYC.
- Bank account details in their own name.
- Signature verification and the required MAM application form.
Once the AMC updates the folio to major status, the investor can operate the account independently and register new SIPs or mandates.
Should Parents Invest in Their Child’s Name or Their Own Name?
Investing in a child’s name can help earmark funds for a specific goal and establish the child as the legal owner of the investment. However, the account has additional operating requirements, and access to the funds is subject to the minor-account rules.
Investing in the parent’s own name offers greater flexibility in operating and managing the investment. The parent can later use the accumulated funds for the child’s expenses, subject to applicable tax and legal considerations.
The choice depends on the family’s financial goals, ownership preferences and need for flexibility.
Frequently Asked Questions
Can a minor invest in mutual funds without a guardian?
No. A parent or legally appointed guardian must operate the minor’s mutual fund folio until the child turns 18.
Can parents withdraw money from a minor’s mutual fund account?
Redemption requests are made by the registered guardian, subject to the mutual fund’s process. The proceeds must be credited to a verified bank account in which the minor is a holder.
Can a minor continue an SIP after turning 18?
Existing SIPs and debit mandates are generally suspended during the minor-to-major conversion. After the AMC updates the folio, the adult investor can register new mandates.
Is a minor’s PAN mandatory to open a mutual fund folio?
A minor’s PAN is generally not required at initial folio opening under the applicable process. The child needs their own PAN and KYC for conversion to a major folio.
Conclusion
Investing in mutual funds for a minor can help parents plan for long-term financial goals. Before opening a folio, it is important to understand the documentation, bank-account requirements, taxation and transition process at age 18. The investment should be aligned with the financial goal, time horizon and family’s risk tolerance.
To learn more about SJS Finserve’s wealth management and financial planning services, visit:
Website: https://sjsfinserve.com/ Our Services: https://sjsfinserve.com/service/ Our Team: https://sjsfinserve.com/our-team/ Contact Us: https://sjsfinserve.com/contact-us/
