A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
Can minors invest in mutual funds?
Anyone under the age of 18
(minor) can invest in mutual funds, with the help of parents/legal guardians up to the age of 18. The minor must be the sole account holder represented by the parent/guardian. Joint participation is not allowed in a child’s mutual fund folio. You should have an investment target for the child that must be achieved by investing in mutual funds such as financing higher education.
Once a child reaches the age of 18 and becomes older, the first thing you as a parent/guardian need to do is change the status of the sole account holder from Minor to Major otherwise all transactions would be stopped in the account. The tax implications will now have to be borne by the sole account holder, as applicable to any investor over the age of 18. Until the child is a minor, all income and earnings from the child’s wallet are under the parent’s income and the parent pays the applicable taxes. In the year when the child becomes older, he will be treated as a separate entity and will pay taxes for the number of months for which he is a major in that year.