Understanding the Minor's Folio
When you invest in mutual funds or stocks in your child's name, you create what is known as a minor's folio or Demat account. In India, any person under the age of 18 is a minor and cannot legally enter into contracts. Therefore, these investment accounts
are operated by a guardian—typically a parent—on behalf of the child. The child is the sole, beneficial owner of the assets, but the guardian manages all transactions, from making investments via SIPs or lump sums to handling paperwork. This structure allows parents to build a significant corpus for their child's future goals, like higher education or a wedding, by harnessing the power of long-term compounding.
The Hurdle of Turning 18: Folio Regularisation
The moment the child turns 18, they become a legal adult, and the guardian's authority to operate the account ceases immediately. To reflect this change, the folio must undergo a process called 'regularisation' or 'change of status from minor to major'. This isn't just a formality; it's a mandatory step. The account is typically frozen for all transactions—including new investments and withdrawals—until this process is complete. The new adult must complete their own Know Your Customer (KYC) process, obtain a PAN card, update their bank details, and submit a specific 'Minor Attaining Majority' (MAM) form to the asset management company (AMC) or depository participant. Delays in completing this paperwork are common, leading to a period where the investment is in limbo.
The Old Problem: Blocked Dividends
This operational freeze created a significant problem for investors. While a folio was pending regularisation, any dividends declared by companies or mutual funds would often get stuck. Because the guardian could no longer operate the account and the new adult hadn't yet been onboarded, there was no clear instruction on where to credit the payout. This meant that dividend income, which rightfully belongs to the investor, could be delayed indefinitely. It added a layer of financial friction to an already cumbersome administrative process, causing anxiety for parents and their newly-adult children who were trying to follow the rules but were caught in procedural delays. This locked-up income defeated one of the passive benefits of holding an investment.
The Welcome Change: Dividends Get a Green Light
Addressing this investor pain point, regulatory clarifications have made it possible for dividend processing to continue even for minor folios that are awaiting regularisation. This is a crucial, investor-friendly move that ensures income flow is not disrupted by administrative procedures. While the folio itself remains frozen for transactions like buying or selling until the KYC and other formalities are completed, the dividend payouts are no longer held up. The dividends are typically credited to the bank account that was registered and verified with the folio before the minor turned 18. This ensures the rightful owner receives their income promptly, decoupling the dividend payment process from the status change paperwork.
What Guardians and New Adults Must Still Do
While the dividend rule is a relief, it does not remove the need to complete the regularisation process. It is simply a temporary safeguard. As soon as a child approaches their 18th birthday, guardians should prepare the necessary documents. The new adult will need their own PAN card and a bank account. They must also complete their KYC registration. Once they turn 18, they should promptly submit the MAM form along with the required documents to the relevant AMC or brokerage firm. Asset management companies usually send reminders ahead of the 18th birthday, but the responsibility ultimately lies with the investor. Proactively completing this process ensures full control over the account is transferred smoothly, allowing the new adult to manage their investments, make new transactions, and build on the financial foundation their parents created for them.
