New SEBI Rule: Mutual Fund Investment in the Name of Minor Children
News on mutual fund investments: Soon, parents or legal guardians can fund their children's mutual fund schemes from their own bank accounts. A new SEBI circular dated May 12, 2023 states that they will no longer be required to register joint accounts or open the accounts of minor children for this purpose.
The Securities and Exchange Board of India (SEBI) has updated its 2019 circular (SEBI/HO/IMD/DF3/CIR/P/2019/166) that outlined the standard procedure to be followed by Asset Management Companies (AMCs) in regard to investments made in a minor's name through a guardian.
According to SEBI, the AMCs should insist on a change of pay-out bank mandate for existing folios before redemption is carried out.
The SEBI's circular reads: “Payment for investment by any mode shall be accepted from the bank account of the minor, parent or legal guardian of the minor, or from a joint account of the minor with a parent or legal guardian.”
Therefore, when the units are purchased, any of the three bank accounts can be used: 1. minor's bank account, 2. Bank account of a parent, 3. Joint bank account of minor and parents.
However, when the units are redeemed, the amount will be transferred only to one account i.e., the minor’s account (which could be a joint account operated along with the parents).
All other provisions specified in the 2019 circular will stay unaltered, according to the regulator. The new regulation will go into force on June 15, 2023.
The Text of SEBI Circular SEBI/HO/IMD/POD-II/CIR/P/2023/0069 dated May 12, 2023 is as follows:
To,
All Mutual Funds(MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/
Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)
Sir/Madam,
Subject: Investment in units of Mutual Funds in the name of minor through guardian
SEBI Circular no. SEBI/HO/IMD/DF3/CIR/P/2019/166 dated December 24, 2019 has prescribed the uniform process to be followed across Asset Management Companies (AMCs) in respect of investments made in the name of a minor through a guardian. Based on recommendation of Mutual Fund Advisory Committee, it has been decided as under:
1. In partial modification to the above SEBI circular, it has been decided as under:
Para 1(a) shall read as under: “Payment for investment by any mode shall be accepted from the bank account of the minor, parent or legal guardian of the minor, or from a joint account of the minor with parent or legal guardian. For existing folios, the AMCs shall insist upon a Change of Pay-out Bank mandate before redemption is processed.”
Irrespective of the source of payment for subscription, all redemption proceeds shall be credited only in the verified bank account of the minor, i.e. the account the minor may hold with the parent/ legal guardian after completing all KYC formalities.
All other provisions mentioned in the aforesaid circular shall remain unchanged.
2. All AMCs are advised to make the necessary changes to facilitate the above changes in mutual fund transactions w.e.f. June 15, 2023.
3. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulation 77 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
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