In a circular dated May 12, 2023, the market regulator, SEBI (Securities and Exchange Board of India), announced changes in the framework of Mutual Fund Investment made by Parents or legal guardians in the name of a minor. Starting a mutual fund in your child’s name no longer necessitates the time-consuming procedure of opening a bank account in their name.

As per the old SEBI Circular dated December 24, 2019, regarding the uniform process in respect of investments made in the name of a minor through a guardian that Asset Management Companies (AMCs) need to follow, payment for investment in mutual funds on behalf of a minor could only be made from the minor’s bank account or a joint account of the minor with the guardian. As a result, to invest in the name of your dependent minor child, you must first open a bank account in their name.

The new regulation allows investments to be made from a minor’s joint account with a parent or legal guardian as well as from the bank account of the minor’s parent or guardian. In other words, they are now permitted to use any of the three bank accounts: the minor’s account, the bank account of the minor’s parents or legal guardians, or the joint bank account of the minor and parents or legal guardians.

However, regardless of the method of payment used to purchase the mutual fund units, any redemption earnings will only be credited to the minor’s verified bank account, which they may share with their parent or legal guardian.

Furthermore, joint owners will not exist for investments made in a minor’s name. It is important to keep in mind that you will lose control of the assets once your child turns 18 and becomes the only owner of the investment.

As of June 15, 2023, SEBI has ordered all AMCs to make the necessary adjustments to allow for these mutual fund transactions. The purpose of SEBI’s move is to provide consistency among all mutual fund companies and to simplify the investment procedure for mutual fund investors who act on behalf of minors.