I have come across a practical aspect of SIP investment in a minor applicant through guardian.
What should be the course of action from AMC side when the minor becomes major -should the SIP stop automatically or should it continue till the status is changed, which in some case is done even after 2 to 3 years.
Kindly throw some light on this subject with reference to SEBI regulations.
ZM Kapasi, Mumbai
The industry does not follow any uniform practices in dealing with minor to major accounts.
Ideally, fund houses are required to discontinue transactions once a minor turns major. However, a few AMCs allow transactions or accept fresh money even after the minor turns major. However, fund houses do not allow redemption until the major completes the KYC process.
Parents or guardians can invest in mutual funds on behalf of their children through a minor account. Since children do not have income and mandatory documents like PAN, Aadhaar and bank account, AMFI rules mandate parents to invest in mutual fund through their KYC details. AMFI rules say, “In case of investments in respect of a minor, the parent/legal guardian who opens the account on for the minor needs to complete the KYC process.”
They are also required to submit proof of date of birth and their relationship with the minor to open such an account. Minor will be the nominee under such investments.
The minor is entitled to get redemption proceeds once they become major and complete their KYC. AMFI said, “When a minor becomes a major on attaining 18 years of age, he has to undergo and complete KYC process in his own capacity and notify each of the concerned mutual funds by filling up a prescribed ‘minor attaining majority form’ in order to be able to transact further in his folios.”
Typically, in such a scenario, most ‘minor turns major’ investors take a little while to complete their KYC. A Mumbai RIA requesting anonymity said, “The industry assume that as and when a minor turns major, he will obtain his PAN, open a bank account, get Aadhaar or driving license and complete mutual fund KYC on the very first day. This is impossible. Even if we tell such clients in advance, they take a little while to complete these formalities.”
A few MF officials and RTAs officials have confirmed that AMFI has already instructed RTAs to discontinue fresh investments where minor has become major and their KYC is pending.
Also, RTAs and fund houses have been asked to intimate them to complete their KYC to keep their folio active at least one month prior to the date at which minor becomes major through a physical letter and email.
In fact, the industry will soon come out with a single form through which minor turns major can notify all RTAs and fund houses about their status, said an MF official.
