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One of our reader MFDs recently wrote to us enquiring about the investment process on behalf of minors. What made his query peculiar was that it involved an Indian grandfather who wants to invest on behalf of his minor granddaughter, who is an Irish citizen.
In this regard, Cafemutual got in touch with CAMS and KFinTech to understand the right approach.
A Shameem Banu, Functional Manager-Customer Delight, CAMS said if NRI parents and minor hold an OCI (Overseas Citizen of India) card, the investment process becomes easier. Also, he clarified that investments can be made only with natural/legal guardians as guardian.
To this, Mario S Roche, COO-Domestic Fund Services, KFinTech added that investments can be made only in child gift schemes with duly filled forms signed by the guardian and donor. Also, investment in the name of a foreign national is subject to norms stated in SID (Scheme Information Document).
The documentation comprises
- Mandatory KYC compliance for donor and guardian
- Duly notarized minor’s birth certificate mentioning guardian’s name or any other valid proof to substantiate the relationship between minor and guardian. A guardian can only be mother/father or legal guardian
Bank account and tax treatment
Inflows and outflows need to be routed only through an Indian bank account which should be in minor’s name.
In case of redemptions before majority, proceeds can be credited to minor’s Indian bank account having the same guardian as registered in the mutual fund folio. However, it is subject to the completion of the applicable lock-in period.
With regards to taxation, A Shameem advised reaching out to tax consultants and Mario explained that tax will be deducted based on guardian's tax status (NRI/foreign national).