Parents are the first teachers of their children. We teach our children to talk, walk, read, write… and equally important is teaching them to manage their money. We can start early with little lessons on how they can spend their pocket money and the older they grow; we can guide them on how and where to invest. This will help them become better decision makers when they are adults.
Knowing how to create wealth through effective money management is a key component when we talk about money. Naturally, a discourse like this shouldn’t feel forced; instead, it should flow naturally to engage children.
What if you could teach your kid more about financial instruments while simultaneously assisting them in maximising the returns they can get on their saved money? Investing in mutual funds in your child’s name is an effective strategy. Yes, you can start a mutual fund account in India in the name of your minor child and provide them with a way of investing.
Mutual fund for children under 18
With the help of parents or other legal guardians, minors or children under 18 can invest in mutual funds. Simply put, this means that even though the investment will be made in the child’s name, it will be represented by a parent or guardian who will need to approve all transactions. The child’s ownership rights will remain intact, though.
What are mutual fund programmes available for a child to invest in?
The process of investing on behalf of children is comparable to the process of choosing the best mutual fund investment strategy. The intriguing aspect is that minors can invest in any mutual fund programme offered to adults.
In most cases, people who invest on behalf of their children do not have an immediate need for money. Suppose you have at least 7 to 10 years before you need the money. In that case, it’s preferable to choose a high-quality pure equity strategy rather than a hybrid portfolio of debt and equity assets. This is because longer-term length imbalances offer a superior risk-return trade-off.
It is one of the potential ways to teach your child about investing and financial freedom.
How to start a mutual fund account for a child
Some paperwork is necessary to start a mutual fund account for a minor. Two different sorts of documentation must be presented to open such an account. The first is age verification for the child. The birth certificate, a certificate from the last academic year, or another document proving the minor’s age may be provided.
The second document is necessary as evidence of the guardian’s relationship. A birth certificate or a passport can serve as this form of documentation in the case of the parents. Any court order or declaration attesting to the child’s relationship with the guardian is required in the case of a legal guardian.
The guardian has to submit all the necessary documents such as bank details, Permanent Account Number (PAN), and complete Know-Your-Client (KYC) requirements.
Please be aware that to make such investments, you must open a bank account in the child’s name and no nominees can be assigned to the account. Ownership of the investment will solely lie with the minor child. But the guardian (from their bank account) will make all the payments and receipts for investments.
When it comes to investing, mutual funds can be a great choice if you want your child to have good monetary discipline. It is usually preferable to employ distinct SIPs for various objectives. With Geojit, you can invest for your child in mutual funds in a hassle-free and simple manner.