Minor child turns major: Do this to avoid mutual fund account being frozen If the status is not changed from minor to major when the child turns 18, the investments would be frozen
Investments in mutual funds can very well be made in the name of an individual's minor son or daughter. But once the said minor son or daughter turns 18 i.e. becomes major, certain compliances have to be followed. If these compliances are not followed no further transactions will be allowed for the said mutual fund folio.To keep your mutual fund investment unaffected, once the minor turns major, you must get the mutual fund account regularised by submitting certain details and documents.
"Upon the minor attaining the status of major, the minor in whose name the investment was made, shall be required to provide all the KYC details and updated bank account details including cancelled original cheque leaf of the new account. No further transactions shall be allowed till the status of the minor is changed to major," said the Securities and Exchange Board of India (SEBI) in a circular dated December 24, 2019.
What are the documents needed to convert the status of mutual funds from minor to major?
Senthil G, Chief Business Development Officer - India & Global Business, KFintech, a registrar and transfer agent (RTA) explains the process and documents required for converting a minor son or daughter's mutual fund investment account's status from minor to major.He says, "To covert the status of mutual funds, the parents of the minor must submit a written application for status change with AMC or RTA of the concerned mutual fund. The application should also have the minor's signature, which the bank official attests."
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Apart from the application, certain documents are also required. They are:
A minor's KYC is required with a copy of the Aadhaar and PAN card.
Bank account registration form or a copy of the bank passbook or cancelled cheque from the bank, which shows the minor who is now a major's account details.
A filled-up nomination form and a fresh systematic investment plan (SIP), systematic transfer plan (STP), and systematic withdrawal plan (SWP) mandate in the prescribed form (to continue the SIP, STP, SWP, if applicable.)
Having an Aadhaar card is a must for this conversion process. "Minor to major conversions will require the Aadhaar card and PAN number. Till the time when both documents are shared, transactions will not be allowed by the fund houses. Further, the KYC will be on hold for the time being," says Senthil G.
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Even minors can get their own PAN card. "Parents looking to change their child's mutual fund status from minor to major should ensure that the child has a valid Aadhaar and PAN card. Contrary to popular belief, obtaining a PAN card is not limited to adults. Even minors can get one with a parent or guardian signing Form 49A on their behalf," says Senthil G.
Income tax implications of conversion of minor's mutual fund status from minor to major
Any gains made from investments made in the name of the minor while the child is a minor are clubbed with the income of the higher-earning parent. "However, once a child becomes major, and sells investments that were initially made in their name when they were a minor, the said incomes won't be clubbed with the highest earning parent. As the adult child is now considered a separate taxpayer, they are required to file their income tax returns," says Neeraj Agarwala, partner, Nangia Andersen India, a tax and business consulting group.It is the responsibility of the adult child to pay their taxes on time even if the gains are from investments made by their parents when the child was a minor. "Parents, in such cases, are generally not held accountable for the tax affairs of their adult children," says Agarwala.
Also read: Investing in FDs, mutual funds, in the name of a minor child? Know the income tax implications.
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This story originally appeared on: India Times - Author:Faqs of Insurances
