Turning 18 is a landmark moment in every young person's life, but it also signals an important shift in how their finances are handled. For parents who have spent years investing for their child's future, the transition can seem daunting.
Parents who have diligently created a nest egg through mutual funds, SIPs or other investments often wonder what comes next.
In most cases, there is no cause for concern. The accumulated investments stay exactly where they are, but their operation changes as the account holder's legal status moves from minor to major under Indian regulations.
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Minor Savings Account
Banks allow parents or legal guardians to open savings accounts for minors. Depending on the bank and the child's age, the account may either be operated solely by the guardian or jointly with the minor.
Once the account holder turns 18, the account can no longer be classified as a minor account.
Since they are now legally an adult, they must operate it independently. Here are the steps to be taken:
Visit the branch: In most cases, both the parent (guardian) and the newly minted adult need to visit the bank branch together.
Submit fresh KYC: Provide the child's updated Aadhaar card and PAN card reflecting their adult status.
Update signatures: The child will change their signature to an official adult signature, which the bank records.
The exact process varies across banks, but updating the account soon after turning 18 helps avoid inconvenience.
Fixed Deposits (FDs)
FDs for minors are popular for secure, fixed returns towards education or other goals. They are opened in the child's name with a guardian.
When the child turns 18, the ownership of the FD does not change: the investment continues to belong to the child. However, the operational control shifts from the guardian to the now-adult account holder.
For existing FDs, banks usually require updated KYC to transfer operational rights to the now-adult child. The deposit continues until maturity on the original terms.
Mutual Funds
Mutual funds (including children's funds) can be invested in a minor's name with a guardian managing the folio. The minor is the sole unit holder; no joint holders are allowed.
A child's 18th birthday marks an important transition for mutual fund investments held in their name. The guardian's authority over the folio ends automatically, meaning parents can no longer buy, redeem or switch units on the child's behalf. In addition, all active systematic transactions, such as SIPs, STPs and SWPs, are put on hold.
The folio can only become operational again after the investor completes fresh KYC requirements and updates the account to reflect their major status.
To conclude, once your child becomes an adult, they gain the right to manage their own investments. Ensuring the account is updated correctly allows them to use the funds without administrative delays, whether for higher education, launching a career or meeting other financial priorities.
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