Recently SEBI has announced that legal guardians or parents are authorized to regulate the minor’s MF folio through their bank account. In May 12, a circular released by SEBI made it official that now, Parents or any other legal guardian can make payments through their bank account to their minor’s MF folio.
The change has effected the process of mutual funds’ investments of minor’s folio and made it flexible & easier for a parent. However, the redemption proceeds of the investments would be still entitled to the child. This means the child is the sole holder of the account. When he is 18, & he should complete his KYC details, and then can operate such an account in his own name.
The taxability of such accounts are held by SEBI in two perspectives by the experts. First, if the parent withdraws the payments before the child turns into majority, then, under the Income Tax Act, 1961 they are liable for taxes in the capital gains. On the other hand, if the child gets the redemption, the tax on the capital gain falls on the hands of the child.
Before this announcement, SEBI had mandated that a minor’s account could only be accepted through a minor’s bank account with a joint account with the guardian. However, after this announcement the SEBI has made easy to transfer the funds from the parent’s bank account to the minor’s account in way that is more flexible.