Whether a child is still crawling around the living room floor or getting ready to graduate from the high school, investing in mutual funds on his/her behalf is a good idea. Investing early provides an opportunity to generate long term wealth that can be used to meet the rising financial needs as a child grows up.

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And this can be done by investing through Systematic Investment Plan (SIP) in equity or a hybrid fund, states Mohit Bhatia, head, sales and marketing at Canara Robeco Mutual Fund.

SIP, as we know, helps in reducing risks associated with market volatility. In long-term this can be used to generate decent returns.

Besides, SIP can be opened with an amount as low as Rs 500, which means it is not very heavy on pockets.

"As there is time, opening a SIP in name of child means both purpose and results can be achieved," says Satyen Kothari, founder and chief executive officer, Cube Wealth.

Yashpal Sharma, vice president, Taurus Mutual fund seconds Kothari's views.

"Additionally, it creates an opportunity for the child to become aware of finance and inculcates lessons in investing and saving. There are specific mutual find schemes that allows for creation of a diversified and tax-efficient investment portfolio in the name of the child," Sharma stresses.

To proceed with this, the parent/guardian are required to open a mutual fund folio in the name of the minor child (the first and sole holder).

"Since minors are not permitted to take financial decisions, there will have to be a designated parent or guardian (either of the parents or any legally appointed guardian) who will be the custodian of the account and has to be KYC compliant," explains Bhatia.

This process and mode of account operation will need to be followed till the child attains the age of 18.

"Post that, child will have to complete KYC in their name and thereafter operate the MF account on their own," Bhatia opines.

Disclaimer:

CNBCTV18.com advises users to check with certified experts before taking any investment decisions.