Invest In Your Child’s Name Without a Minor Bank Account
Many parents delay investing for their child because they assume a bank account in the child's name is the first requirement. But this is not the case. A mutual fund investment account can be opened in a child's name using only the parent's own bank account, PAN and KYC details. A separate bank account for the child becomes necessary only later, at the time of withdrawal for receiving redemption proceeds.
What Is Actually Required to Start
To open an investment account for a minor with Zerodha Fund House, a parent needs:
- One document proving the child's age and the relationship with them: a birth certificate, passport, or school certificate.
- The parent's own PAN and KYC
The child's PAN is not required. A bank account in the child's name is not required either. The parent's bank account is used to fund the investments by default.
The account itself is opened in the child's name and is separate from the parent's own investment account. The parent/legal guardian manages every decision, including fund selection and starting or stopping a SIP, until the child turns 18. You can now open an account with Zerodha Fund House here.
Where a Minor Bank Account Enters the Picture
Or
When do you need a Bank account in the Child’s name
A bank account in the child's name is needed only at the point of withdrawal. As per applicable SEBI Regulations, redemptions from a minor's mutual fund folio must be credited to the verified bank account in the name of the minor.
The process, when a withdrawal is needed, involves these steps:
1. Open a bank account in the child's name, if one does not already exist.
2. Update the child’s bank account on the child's investment account through CAMS.
3. Submit bank account proofs from both the parent's current account and the child's new account with CAMS to verify and update records.
4. Observe a 7-day cooling-off period that applies after any bank account change in mutual funds.
5. Submit the withdrawal request after the cooling-off period. Funds are credited to the child's verified bank account.
There is no lock-in period on the investment itself except scheme specific lock-in. A withdrawal request can be placed at any time once the child's bank account has been verified and updated.
Who Can Invest on Behalf Of The Minor
Either parents, or a court-appointed legal guardian, may open and operate the account on the child's behalf. A legal guardian who is not a natural parent will need the relevant court order confirming guardianship.
What Happens at Age 18
When the child turns 18, the account remains in their name but requires a one-time onboarding and KYC verification from the child to activate their control. At that point, three things happen automatically:
1) The status changes from minor to major
2) Any SIP started by the parent pauses
3) The parent can no longer invest from their own bank account into the child's folio and
4) The account is frozen for new transactions until the child completes onboarding. Once onboarding is complete, the child operates the account independently, including starting new SIPs, switching funds, or withdrawing.
Taxation
While the child is under 18, capital gains from this account are clubbed with the parent's income and taxed per the holding period for that fund type. From the month the child turns 18 and attains majority, capital gains are taxed in the child's own hands, subject to applicable tax provisions.
The Practical Takeaway
In case you're planning to invest in your child’s name, the absence of a bank account in their name is not a reason to delay starting an investment for them. The account can be opened with the parent's existing bank account and PAN, and a bank account in the child's name can be arranged later, closer to when a withdrawal is actually needed.
Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Please consult your tax advisor before investing in view of the individual nature of the implications.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Zerodha Mutual Fund
MF/080/23/06
