How to invest in mutual funds in the name of an NRI minor? | Value Research There are some things to keep in mind while investing on behalf of your children when you both are NRIs
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How to invest in mutual funds in the name of an NRI minor?

There are some things to keep in mind while investing on behalf of your children when you both are NRIs

How to invest in mutual funds in the name of an NRI minor?

My kids are holding OCI cards. I have opened NRE and NRO accounts for my kids (6-year and 10-year old sons), and also got a PAN card for them. Is it possible to do mutual fund SIP (direct) on their name with their PAN and NRE/ NRO accounts? Please advise as I need to do SIPs on their names for the future education needs. - Anonymous

Investing in mutual funds as an NRI and on behalf of a minor child has their own set of challenges. Let's take a look at what to keep in mind when both of those situations are combined, i.e., investing in mutual funds on behalf of a minor child who is an NRI.

Investing on behalf of a minor
This is rather straightforward.

  • The guardian (legal or natural) of the minor must be KYC compliant.
  • Documents for proof of the minor's date of birth and relationship between the minor and guardian are required. Birth certificate or passport or school leaving certificate of the minor would serve both these purposes.
  • The bank account through which investment is made should be that of the minor or guardian mentioned in the folio.
  • The standing instructions registered such as SIP, STP, SWP will be executed only till prior to the date of the minor attaining majority.
  • The folio will be opened in the name of the minor alone.
  • Joint accounts with minors is not permitted.

Investing as an NRI
Now if you are an NRI investor, then you are required to

  • Inform the AMC of your residential status.
  • Make sure the bank account through which investments are made is a NRE/NRO account.
  • Provide information required to comply with the provisions of FATCA (tax-related information) in case you are based in the US.

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NRI investing on behalf on a minor
Hence if you are an NRI investing on behalf of a minor, then you can

  • Create a folio online by providing your details such as name, contact details and PAN which is used to check if you are KYC compliant.
  • Select "On behalf of minor (NRE)" or "On behalf of minor (NRO)" as the tax status at the time of creating the folio. There will be a text box which shows up when you select either of those options which mentions to invest only through bank accounts in which minor is the sole account holder or a joint holder. This is because redemption proceeds can be credited to only such accounts.
  • Upload the scanned copy of the birth certificate.
  • Fill up the remaining details and provide the FATCA/CRS self declaration, if you are based in the US or Canada.

Note that the process may differ from one AMC to another as not all of them accept investments from NRIs due to the additional compliance requirements.

Tax implications
There is no difference in applicability of taxes on gains except for TDS being applicable on capital gains as follows -

When the minor attains majority, they will have to submit an application to change status from minor to major. You will have to provide PAN, complete the KYC process, update bank account details and make a fresh mandate for SIP, STP, SWP as they are automatically stopped when the minor attains majority. You will also have to provide information regarding your tax status.

Suggested read:
Investing for NRIs
Steps to continue mutual fund investing for NRIs

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