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.
What is the process for changing investor status from Minor to Major?
Minors can invest in mutual funds through their parents/guardians. The minor is the first and only account holder in this case and is represented by a natural guardian (father/mother) or legal guardian (appointed court). A minor represented by a natural guardian reaches the majority at 18 years, while those represented by legal guardians reaches the majority at 21 years.
Once the Minor
reaches a majority, you must request a change in the status of the single account holder from Minor to Major or all future transactions (SIP/SWP/STP) would otherwise be suspended in the account. Usually mutual funds send a notice to the guardian and the minor to submit the necessary documents in advance. Guardian must request to change the status to Major along with the signature of Minor duly attested by a bank official. The minor’s bank account registration form and KYC must also be submitted with the application.
The tax implications will now have to be borne by the sole account holder (Major). Until the child is a minor, all income and earnings from the child’s account are under the parent/guardian’s income and the parent/guardian pays the applicable taxes. In the year in which the minor reaches the majority, he will be treated as a separate individual and will pay taxes for the number of months for which he is a major in that year.