Investing in Mutual Funds for Your Child's Future - Pros and Cons
Investing in your child's future is one of the best gifts you can give them. Setting up a mutual fund investment in your minor child's name can be a great way to build a corpus for their future needs like higher education. But it's important to understand the pros and cons before taking the plunge.
The Potential Benefits
It helps you set aside a portion of your investments for a specific goal - your child's future. This provides focus and motivation.
Investing in your child's name makes you emotionally invested in building a corpus for them. This can prevent you from dipping into the funds for other needs.
It exposes your child to finances and investing early on, helping them develop financial responsibility.
Taxation of gains may be lower as it will be based on the child's income tax slab once they turn 18.
Factors to Consider while opening child mutual funds.
Ownership of investments transfers to the child when they turn 18. The account is frozen till paperwork is completed.
Handing a large sum to an 18-year-old may not be prudent if they lack maturity in money management.
No joint holding facility, so the guardian is sole operator until the child turns 18.
Steps for Opening an Account
To open a mutual fund account in a minor's name, the guardian needs:
Proof of child's age and relationship with the guardian
Documents like birth certificate or passport
These need to be submitted when making the first investment. Not required again with the same fund house.
The Final Word
Evaluate your own situation and comfort level before deciding what's best for your child. Research thoroughly. Ultimately, the choice depends on your specific circumstances and goals. Invest wisely in your child’s future.