How to open an investment account for your kids?

investment account for kids

The importance of investing is almost undebatable. Investments are already an important financial tool to help you save for your future.

Most people either learn about investing very late in their lives or towards such stages when the market isn’t favorable enough.

In today’s finance-savvy world, it’s almost a necessity to teach your kids the knowledge of investing. Without having the knowledge about the importance of long-term investments, it’s impossible to be financially independent in the later years of your life.

This is why if you are trying to find the right roadmap for opening an investment account for kids, we have compiled this post to help you start an investment account for kids.

The basics of opening an investment account for kids

For the sake of starting an investment account for your kids, you as a parent or a guardian can start an investment account for your kids. 

If you want to protect the interests of your minor child, there are a few specific operating procedures for all the investments that you make in the name of your child. The following factors are necessary to be taken into consideration:

  • Since a minor can’t make informed decisions on his account, a guardian is important to have for the account. This guardian manages and monitors the account and oversees any account obligations required.

  • Usually, for opening an account, a birth certificate of the child is required. 

  • A document that states the relationship between the guardian and the child is also required.

  • The documents of the guardian, including the Aadhar card and the PAN card are required.

  • The payments made to the account of the minor could be made from the account that’s created under his name under the supervision of his guardian.

  • The investment account for the minor child shall not be a joint account.

Where should minors invest?

Mutual funds are one of the best places for minor investors to put their money. In fact, mutual funds are considered to be one of the safest investment options because of the little to no management required and timely investments that you make.

Minors can easily open a mutual fund account without even having to create a demat account

Opening the investment account

After you have chosen the type of investment account you want for your kids, the next step is to keep all the necessary information ready.

Right from your Aadhar number, and PAN card to DOB certificates, everything is important to set up an investment account for your kids.

As a parent or guardian, you might also have to provide your income information along with linking your bank account to your own account to fund the account whenever required.

Help your kid choose what to invest in

As soon as your custodial account is set up and funded, the next step is to invest your money.

Whether you are making an investment for yourself or your kids, the analogy and fundamentals of investing always stay the same. 

This means you can start by teaching your kids about the stock market, mutual funds, securities, and exchange-traded funds so that they don’t find it hard to understand the difference between all of them.

You can also:

Help them pick individual stocks – by allowing them to focus on such companies and securities that are practically the household names. Owning a share of a brand or business that the kid has known from their childhood will get them excited about investing.

Build the portfolio with multiple index funds – With the addition of more money to the investment account for your kids, you can make them focus on low-cost index funds or ETFs. This allows your kids to create a diversified portfolio and allows your child to invest in different places in their portfolio.

As soon as your kids get comfortable with their investments, you can continue checking in on them and seeing how their portfolio is doing. This allows you to further tweak their knowledge and introduce them further to the world of investing.

Your approach to opening investment accounts for kids

When it comes to opening an investment account for kids, there are certain situations that could arise, precisely being:

In the absence of taxable income – In case your child doesn’t have any taxable income accounts, you can open a custodial brokerage account for your kids. The account will initially be in your control, which would be passed to your child as they turn 18 depending on the state laws. 

In the presence of taxable income – In case your child has a taxable account or is involved in a part-time job, you can manage the account as a guardian. However, the payments made to the account could be done by the child only. This type of account is usually created to serve for retirement, but could also be used for education and other purposes.

Conclusion

For the sake of starting your investing journey with mutual funds, you can open a demat account and easily start investing.

Investing young is a really good idea that will introduce your kid to the fundamentals of saving and investing money from their early years. 

If you want to start investing for yourself as well, you can get started with us at MoneyIsle and choose the best kinds of mark

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