Minor becoming major
Also written Minor attaining majority · Change of status from minor to major
The change of status in a folio held in a minor's name when the minor turns 18 — the new major completes PAN, KYC and bank updates, and no transactions are allowed until the AMC's records show the change.
In plain language
A minor can own mutual fund units but cannot operate them. The workbook's reason is simple: minors are not legally authorised to enter into contracts on their own behalf, or issue cheques to third parties. So while the investor is under 18, the guardian gives the PAN, completes KYC, and signs the application form and payment instruments on the minor's behalf.
On turning 18, the investor has to take over. The folio still belongs to the same person — it is not a transmission and not a transfer — but every piece of identification and authority in it was the guardian's, and has to be replaced with the new major's own.
The workbook's rule is strict: no further transactions are allowed till the status of the minor is updated to major in the records of the AMC.
How it works
The sequence in section 15.5 is ordered, and the AMC comes last:
- Obtain a new PAN card in the major's own name.
- Complete the KYC process with a KRA through an intermediary.
- Update the information with the bank.
- Then inform the AMC, providing all the KYC details and updated bank account details, including a cancelled original cheque leaf of the new account.
This rests on SEBI's uniform process for investments in the name of a minor through a guardian, which governs the folio from the start:
| Point in the folio's life | Rule |
|---|---|
| Application in the minor's name | Date of birth compulsory, with supporting documents |
| Payment for subscription | Only from the minor's bank account or a joint account of the minor with the guardian |
| Existing folios | AMC insists on a change of pay-out bank mandate before redemption is processed |
| Redemption proceeds | Always credited to a bank account in the name of the minor, irrespective of the source of subscription |
It is a non-financial transaction, processed by the RTA like a change of bank details or address, and it must be completed before the new major can redeem.
A worked example
Illustrative dates and numbers.
Ananya's father opened a folio for her when she was nine, paying from a joint account in her name and his. By her eighteenth birthday the folio holds 3,000 units, and the NAV is Rs 25.00 — Rs 75,000.
A month after she turns 18 she needs the money for college fees and submits a redemption request.
It is not processed. Her status in the AMC's records is still "minor", the PAN and KYC on the folio are her father's, and no further transactions are allowed until that changes.
She does it in order:
| Step | Done with |
|---|---|
| Obtains a new PAN card in her own name | — |
| Completes KYC | a KRA, through an intermediary |
| Updates her details | her bank |
| Submits KYC details, updated bank details and a cancelled original cheque leaf of her new account | the AMC or RTA |
Once the RTA updates the folio to major, she resubmits. The Rs 75,000 goes to an account in her own name — never to her father's — exactly as it would have had it been redeemed while she was a minor.
The lesson for the exam is the gap: between the eighteenth birthday and the AMC's update, the folio accepts no further transactions at all.
Why NISM asks about it
Chapter 15 (Non-Financial Transactions) sets out the procedure in section 15.5, and its sample question asks what compliance is required when a minor becomes major — submitting a KYC form with PAN and bank details of the major, against "no documentation" and "phone intimation" distractors. Chapter 12 (Investors in Mutual Funds) supplies the background: who a minor is, what the guardian provides, SEBI's uniform process on payment and redemption accounts, and a sample question confirming that in a minor's transaction the guardian's PAN is given.
Common exam traps
- During minority the guardian's PAN and KYC are used, not the minor's — sample questions test this directly.
- The AMC is informed last, after PAN, KRA KYC and the bank update are done.
- No transactions are allowed until the status is updated — not just no redemptions.
- A cancelled original cheque leaf of the new account is part of the submission.
- Redemption proceeds go to an account in the minor's (now major's) name, whatever account the subscriptions came from.
- Subscriptions for a minor may come only from the minor's account or a joint account of minor and guardian. A guardian's personal account makes it a third-party payment.
- Minor becoming major is a non-financial transaction, not a transmission. The owner has not changed.
Check yourself
1.For a minor becoming major, the required compliance by the investor is:
- a)Submitting a KYC form with PAN and bank details of the major
- b)No documentation is needed
- c)Changing the nominee only
- d)Only phone intimation to the RTA
Show the answer
Answer: (a) Submitting a KYC form with PAN and bank details of the major
The minor, upon attaining the status of major, is required to provide all the KYC details, updated bank account details, including cancelled original cheque leaf of the new account.
And the sequence: customers (who have attained majority) should first obtain new PAN card, complete KYC process with KRA through the intermediary and update information with the Bank. The AMC may be informed of the change after above steps are completed.
PAN → KYC → bank → AMC.
Options B and D are refuted by the consequence of inaction: no further transactions are allowed till the status of the minor is updated to major in the records of the AMC.
The folio freezes.
Option C addresses the wrong thing. A minor's folio could not have a nomination at all — Chapter 12 records that investments by minors cannot have a nomination — so there is nothing to change; nomination becomes newly available on majority.
Why each step is needed. While the investor was a minor, the folio ran on the guardian's compliance: guardian's PAN is provided and the guardian must undergo the KYC process, and the guardian signed the application form and payment instruments on behalf of the minors. On majority, all of that must be replaced by the investor's own.
The bank point is the practical one. A minor could be paid only into a bank account in name of the minor, funded from the bank account of the minor or from a joint account of the minor with the guardian only — so the mandate must now move to an account in his sole name, evidenced by the cancelled original cheque leaf.
Two facilities open up on majority — he may now grant a PoA, impossible before because minors cannot enter into valid contracts, and he may nominate.
2.Which of the following change requests can be made by mutual fund investors to update details in their folio?
- a)Change of address, change of bank details and change of nominee — all of these
- b)Change of address only
- c)Change of bank details only
- d)Change of nominee only
Show the answer
Answer: (a) Change of address, change of bank details and change of nominee — all of these
All three are dealt with in this chapter, and all three are non-financial transactions.
Change of address — though not directly with the fund where KYC is done: change of address request for folios that are KRA compliant will not be registered by the fund, and investor should get the address updated with KRA first.
Change of bank details — investors may request a change in the bank details either at the time of a redemption or otherwise through the prescribed format for change in bank details.
Change of nominee — an investor may change nominee as and when required, and appointment and change of nominee will reflect as a non-financial transaction in the account statement.
Why they belong together. Investors may need to update or change the personal information given to the mutual fund. Address for communication, bank details, and change in status among others, may require change from time to time. These transactions are non-financial transactions. They do not have a financial or NAV implication.
The chapter covers several more: change of name, contact details, PAN updation, minor becoming major, registration or cancellation of a PoA, change of IDCW option, and for institutions change of corporate name, status and authorised signatories.
Each has its own turnaround time — change of nomination 30 days, contact details 15, bank account details 15, name 30, signature 30, updation of PAN 15.
And each has its own safeguards — the KRA route for address, the cooling period of 10 days for a bank change accompanying a redemption, and the Re. 1/- test transaction to validate a new account.
3.What is the key role of RTAs in non-financial transactions?
- a)Processing investor service requests such as address, email or contact detail changes
- b)Directly managing the AMC's portfolios
- c)Distributing dividends
- d)Managing bank reconciliations
Show the answer
Answer: (a) Processing investor service requests such as address, email or contact detail changes
The registrar and transfer agent (RTA) capture the contact address, bank account details, status, plan or option chosen and all other relevant information. The R&T agent links the information given in the application to the folio allotted to the investor.
The RTA maintains the investor record, so it processes every request to change it.
Option B belongs to the AMC's investment team. Chapter 9 describes the AMC as the entity that manages the fund's investments; an RTA has no portfolio role.
Option C describes a financial transaction, and although the RTA participates — Chapter 14 records that for redemptions and dividend (IDCW) pay-outs, RTA ensures that the payee details are captured properly in the system — that is not a non-financial function.
Option D is a banking function. Chapter 13 gives the RTA a reconciliation role, but again on the financial side, flagging mismatches as NIGO.
What the non-financial work actually comprises, across this chapter: change of name, address, bank details and contact details; PAN updation; minor becoming major; registering and cancelling a PoA; registering and changing a nominee; pledge and lien marking; transmission of units; change of IDCW option; and for institutions, changes of corporate name, status and authorised signatories.
With defined timelines — name 30, signature 30, nomination 30, contact details 15, bank account details 15, PAN 15, transmission 21, and grievance redressal 21.
And beyond processing, the RTA informs. Its value added services include the consolidated account statement, statements of realized and unrealized capital gains, the ELSS statement, the Statement of Grandfathered Equity Schemes carrying NAV as on January 31, 2018, and a Holding and Portfolio Valuation Statement.
Where this is taught
Free preparation for NISM Series II-BRelated terms
- Folio numberThe unique account number a fund house allots to an investor, under which the registrar holds that investor's units across every scheme of the fund, along with the bank mandate, address and signature.
- KYC Registration AgencyA SEBI-created agency that holds an investor's verified KYC record centrally, so that one KYC completed with any securities market intermediary works with all the others.
- NominationThe account holder's written direction naming who receives the securities on death — up to ten nominees for a demat account, with percentages that must total 100, mandatory for single holdings.
- Third-party chequeA payment for a mutual fund investment drawn from a bank account of which the first holder is not an account holder — not acceptable, and the reason registrars run third-party verification on every subscription.
- Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.
- GuardianThe adult who transacts on behalf of a minor investor, completes KYC in their own name, and signs the application and payment instruments, because a minor cannot contract.
- First holderThe first-named holder of a joint demat account: all communications, dividend and interest warrants, annual reports and meeting notices go to them, though beneficial ownership vests in all joint holders.
- Execution dateThe date on which a depository instruction is to take effect: a DIS debit waits till the end of that day for balance and then fails; for allotments and corporate actions, the day credits are made.
- Individual investorsInvestors who buy mutual fund units for themselves or their family — resident adults, minors through a guardian, HUFs, NRIs/PIOs and eligible foreign nationals — as distinct from institutions.
- Mode of operationHow a jointly held investment may be transacted — jointly, or on an either or survivor basis — chosen at application and recorded in the folio along with the order of holders.