How to invest in direct mutual funds for your child

• Direct mutual funds save on commission costs over the years
• Invest in your name or open a minor folio for your child
• Income from a child's folio is taxed with the parent's income

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If you want to start investing for your child, mutual funds are one of the simplest ways to do it. And if you choose the direct plan instead of the regular plan, you usually save on commission costs over the years. That difference may look small annually, but over 10 to 15 years it can add up.

Let’s break this down in plain terms.

What does “direct mutual fund” mean?

A direct mutual fund is simply a plan you buy straight from the fund house or through an official platform, without a middleman. Because there’s no distributor commission built in, the expense ratio is lower. Over long periods, that works in your favour.

Should you invest in your name or your child’s name?

You can do either.

Many parents invest in their own name and mentally set it aside for education or future expenses. This is simpler.

The other option is opening a minor folio in your child’s name, where you act as the guardian. The money legally belongs to the child, and you manage it until they turn 18.

If you prefer a clean structure and separate tracking, the minor folio route makes sense. Just remember that when your child turns 18, paperwork is required to convert the account.

What documents do you need?

To invest in your child’s name, you will usually need:

• The child’s birth certificate or passport as proof of age

• Your KYC as a parent or legal guardian

• The child’s PAN (many fund houses now require it)

• Bank details for redemption

It sounds like a lot, but once it’s done, you don’t have to repeat it every time you invest.

Step-by-step process

First, choose where you want to invest. You can go directly to the fund house website or use a platform like MF Central.

Select “minor” as the investor category. Fill in your child’s details and your details as a guardian. Upload the required documents and complete the KYC process. Then choose your mutual fund scheme and make sure you select the direct plan, not the regular plan.

You can invest a lump sum or start a SIP. For most parents, a monthly SIP works well because it builds discipline and spreads out risk.

What about tax?

Here’s the part many people miss. Even if the investment is in your child’s name, any income or gains while they are a minor are generally clubbed with the income of the parent with higher earnings for tax purposes, with a small exemption allowed per child.

So keep proper records when filing returns.

What happens at 18?

When your child turns 18, the folio does not automatically become active in their control. You need to submit a request to change the status from minor to major. Fresh KYC and updated bank details are required.

It’s not complicated, but don’t leave it until the last minute when you actually need the money.

Final thought

Investing in direct mutual funds for your child is not complicated. The key is to start early and stay consistent. A modest monthly investment for 15 years often does more than a large one invested at the last minute.