Should you invest in Mutual Funds for grand children?

However, most of the grandparents wish to make a difference in their grandchild's life through adopting wise investment decisions.

Jan 19, 2015 05:01 IST India Infoline News Service

After children, their grandchildren become an important part of life for grandparents, who often want to pour their love and blessings in the form of monetary gifts. However, most of the grandparents wish to make a difference in their grandchild's life through adopting wise investment decisions. One such tool is an investment in the name of minor grandchild in mutual funds by the grandparents.
 
It is a known fact that mutual funds do not accept third-party payments for investments. However, the rule allows a parent/grandparent to invest on behalf of their minor child. But, the amount under such arrangement should not exceed Rs. 50,000, while the required documentation has to be fulfilled by the investor. Some of the conditions applicable on a grandparent investing for their minor grandchild is as under:
 
Maximum Amount: A grandparent cannot invest over Rs. 50,000 for total SIP or purchase.
 
PAN and KYC: Grandparent has to submit his Pan Card and KYC acknowledgement in order to be able to invest in mutual funds. In the absence of KYC, an individual needs to first process and complete his KYC, after which only he would be able to invest.
 
Third-Party Declaration: Every mutual fund house provides a standard format for third party declaration, which is to be duly filled and signed by a grandparent (third-party). The declaration seeks information on the bank account details of the cheque payer and his relation with the investor. The form is signed by both investors that are guardian/parent of the child and grandparent.
 
When child turns major: A grandchild when turned major has to comply with necessary formalities in order to get access to the funds.
 
This way, mutual fund investment offers an exciting route to grandparents to help financial future of their grandchildren. Once formalities are done then a grandparent, could systematically create a reasonable corpus for their loving grandchildren. 

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