How to invest in mutual funds for grandchildren

Grandchildren have a special place in the heart of grandparents who often like to pamper them with love, toys and gifts. An effective way of giving a long-term gift is by investing in mutual funds for the benefit of grandchildren.

Approaches
There are two different ways of investing for grandchildren in mutual funds. Grandparents can invest in their own name and keep the grandchildren as their nominees or invest in the name of a grandchild as a gift.


Investing in the name of grandchild
In this case, each single investment or SIP instalment cannot exceed Rs 50,000. A third party declaration needs to be signed by the grandparent and submitted along with the application for investment. The form mentions bank details of the grandparent and their relationship with the beneficiary (i.e. the grandchild). It has to be signed by the investor (the minor child’s guardian in this case) and the grandparent (third party) making the payment. The KYC documents of both the grandparent and the grandchild need to be submitted too.

Investing in grandparent’s name
In this approach, there is no limit to the amount invested as the investment is made by the grandparent themselves in their own name. At the time of making the investment, the minor is added as a nominee. Here, only the KYC documents of the grandparent need to be provided. Also, along with this, the grandparent while making their will can bequeath this investment to the grandchild.

Points to note

• If an investment is made in the name of a minor, the operations can be carried out only by the parent or the guardian until the child attains majority.
• Usually, a third party is not allowed to invest on behalf of another person, except in such rare cases as a grandparent investing for a minor grandchild.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.