Investing in your child’s name? A Guide for you when your child turns 18 years
It is a “Major” Milestone in your life when your child turns 18 years of age. In India, 18 years of age is considered to be a major and recognized as an adult. Your child can not only vote in elections and get driving licenses but also own assets in their name without a guardian.
Like many parents, even you might have created financial assets in your child’s name. It is common for young children these days to have their own Savings Account, Deposit Accounts, PPF, and even Demat accounts in their names.
Though it may seem like a good strategy to create assets in the name of your minor child, you should be aware of how the assets will be treated when your child turns major. On attaining majority, your child will become the legal owner of all investments you have made in their name i.e. your child is free to take any decision regarding the assets without your permission.
When your child turns 18 years of age, there is a different process to transfer each type of asset to your child’s name. The two important steps to start the process is
I. Obtain PAN number. If your child already has a PAN, you have to apply for correction or reissue of PAN Card with signature and photograph.
II. Obtain identity proof such as passport, Driving License, etc. with recent photo, signature and address updated.
Below are the processes to convert each type of account from minor to major.
1. Conversion of bank accounts from minor account to major/regular account
If your child held a minor savings/deposit bank account, then it has to be mandatorily changed to a regular bank account.
It depends on the rules and regulations of your bank on how they want to convert a minor account to a major one. Some banks upgrade the minor account to a regular account and maintain the same account number. But some banks might request your to open a fresh savings account in your child’s name and transfer the balance from the minor account and close it.
On having a regular savings account, your child will be issued a checkbook and debit card with her/his name on it. The guardian name given earlier will be removed.
The document required for conversion/upgrade from minor to major bank account is as below:
- Copy of PAN Card self-attested
- Age proof such as School Leaving Certificates of State Boards, ICSE, CBSE, etc., Birth Certificate, Passport, etc.
- Address Proof – Passport, Electricity Bill, Voter Id, etc.
- Id proof such as Passport/Driving License/Aadhar etc.
Having a regular bank account for your child is highly important as this is required to update the majority status of Mutual Funds, Demat Account, etc.
2. FDs, RDs, etc. in Banks/Post Offices
The transfer/conversion of assets such as FDs/RDs in banks from minor to major is done after your child has regular savings account in his/her name. The process for change is similar to that of a savings account.
3. Mutual Funds
The first and the most important step to change the status from minor to major is to get KYC done for your child. The required documents for individual KYC are:
- Updated KYC Form
- Copy of PAN attested with signature
- Address Proof (Passport, Electricity Bill, Voter Id, Driving License, etc.)
The KYC can also be done online. Click here to know the process for online eKYC.
Once the KYC is approved, the following documents are required to change the status to major.
- PAN Card copy with self-attestation
- Address Proof (Passport Copy, etc.) with self-attestation
- KYC proof
- Birth Certificate as a proof
- Canceled cheque with your child’s name printed on it.
You also have to submit the filled MAM Form along with the above documents.
4. Shares and corresponding Demat Account
If your child held shares in his/her name, then the process for conversion to a regular account depends on the regulations of the brokerage firm. KYC registration is a prior requirement for this process.
Some firms request for a new account to be opened in the name of your child and then the shareholdings are transferred to the new account. The minor account is then closed.
Some firms allow the same minor account to continue but your child has to complete all the formalities required for opening a new demat account. Your child also has to sign a new agreement with the Delivery Participant (DP) like NSDL or CDSL. The guardian details will be deleted.
5. Converting minor PPF account into major
If your child holds a PPF account, then there are two scenarios possible
a. When PPF account matures before your child turns major
In this case, you can withdraw the maturity amount or choose to extend the tenure by 5 years. If you withdraw the amount, it will be credited to your bank account. If you extend the tenure, then the process in the next scenario is to be followed.
b. PPF account matures after your child turns major
Your child has to submit a copy of the PAN card, birth certificate, canceled cheque with name included, and address proof to change the status to major. The maturity proceeds will be credited to your child’s bank account.
6. Post Office Monthly Income Schemes (POMIS)
POMIS accounts can be opened in the name of a minor if the child is 10 years of age and above. There is a separate limit of Rs.3,00,000 for the minor apart from the limit of the guardian.
On turning major, your child has to apply for conversion of minor account to major along with the birth certificate, copy of PAN Card, and canceled cheque of the regular bank account. After the conversion, all income arising from this account will be considered as income of your child only.
7. Sukanya Samriddhi Yojana (SSY)
This account can be opened only for female child only. The withdrawals from this account are permitted only when your child turns 18 years of age. Both the maturity proceeds and withdrawals will be compulsorily credited to her savings account only.
Many banks insist on opening a minor account and link the same to the SSY account when it is opened.
8. Insurance Policies
For insurance policies, many scenarios can arise for a minor depending on the policy, the policyholder, and the nominee.
a. When the nominee of an insurance policy is a minor
You have to specify an appointee if the nominee of the policy is a minor. The appointee is entitled to withdraw the policy amount on behalf of the minor.
In case no appointee has been mentioned, your child has to wait until 18 years of age to claim the amount. On turning major, your child has to submit age proof such as School leaving certificate and birth certificate, bank account details with canceled cheque, and policy documents.
b. When a minor is a policyholder and also the life insured (in case of child policy)
When a policy is in the name of a minor and the policy benefits will be paid according to the payout terms in the policy.
If the policy payouts are scheduled after your child turns 18 years, the policy amount will be paid to the child’s regular bank account. To claim the amount, your child has to submit the age proof and a canceled cheque along with a copy of the policy document to the insurer.
However, some policies do make payouts to parents/guardians of the child to utilize for expenses related to the child.
c. When the policy is a child plan in which the parent’s life is insured and the nominee is the child
In such policies, the payouts are made to you to meet the regular expenses of the child. If the parent deceases before the child turns major, the proceeds will be paid to the children or the legal guardian, or the appointee of the policy as the situation arises. Your child will receive the benefits of turning major.
Since there are a wide variety of child policies available with different features and policy terms, the process to change the status from minor to major may be different for different types of policies or it may not be required at all.
Important things to know before you invest in your child’s name
- Once the accounts and investments in your child’s name are marked as major, you will lose all rights on the funds accumulated.
- For your own goals such as Retirement, you should avoid investing in a minor child’s name.
- Your children might utilize the funds received for their own will and not for the purpose you invested it for.
- If the assets in your child’s name generate any taxable income, the taxes have to be paid in the name of the child and cannot be clubbed with the parent’s income.
- Before making any investment in your child’s name, you should find out how that investment will be taxed when your child receives it or redeems it.