The Securities and Exchange Board of India (Sebi) on May 12, 2023 modified its previous circular, which prescribed a uniform process for investments made in the name of a minor through a guardian.
Sebi has modified its previous rules that governed the process for investing in mutual funds on behalf of minors. Regardless of the source of payment for subscription, all redemption proceeds shall now be credited only in the verified bank account of the minor
The Securities and Exchange Board of India (Sebi) on May 12, 2023 modified its previous circular, which prescribed a uniform process for investments made in the name of a minor through a guardian.
Revised Circular
According to the revised circular, the capital markets regulator said that payment for investment by any mode shall be accepted from the bank account of the minor, parent, or legal guardian of the minor, or from a joint account of the minor with the parent or legal guardian.
Previously, Sebi only allowed payment for investment from the bank account of the minor or from a joint account of the minor with the guardian. The new circular aims to further streamline the investment process for mutual fund investors who invest on behalf of minors. Now guardians can directly make payments from their bank accounts.
However, regardless of the source of payment for subscription, all redemption proceeds shall be credited only in the verified bank account of the minor, which the minor holds with the parent/legal guardian after completing all ‘know your customer’ (KYC) formalities.
For existing folios, asset management companies (AMCs) shall require a change of pay-out bank mandate before redemption is processed. All AMCs are advised to make changes to this effect from June 15, 2023, the release said.
Upon attaining majority status, the minor must first complete transmission of units before applying for redemption. All other provisions mentioned in the previous circular released in December 24, 2019 remain unchanged.
“AMCs shall build a system control at the account set-up stage of systematic investment plan (SIP), systematic transfer plan (STP) and systematic withdrawal plan (SWP) on the basis of which the standing instruction is suspended when the minor attains majority, till the status is changed to major,” the previous circular said.
Investing In Mutual Funds On Behalf Of Minor
When opening a mutual fund account for a minor, the minor should be the only account holder. There can’t be any joint accounts.
The guardian opening the account should be the child’s natural parent or a court-appointed legal guardian. One needs to provide documents proving the child’s date of birth, such as a birth certificate, school leaving certificate, passport, or another suitable proof proving date of birth. These documents must be attested by a notary public, judicial magistrate first class, or a gazetted officer.
When a minor has a mutual fund account, the ownership of the units belongs to the minor, but the guardian can operate the account until the minor becomes an adult.
Once the minor becomes an adult, they must provide their updated KYC details and bank account information, and their guardian cannot make any transactions on their behalf.
To change the status of the account from minor to major, the adult must submit a minor attaining majority mutual fund request form (MAM form) and provide documents such as a permanent account number (PAN), KYC form, cancelled cheque, and signature attestation.