Financial Literacy is an important aspect of life. Growing up and teaching your kids about it is crucial, as in most cases, it serves as a life skill to get by and manage life. Investments play a major role in financial literacy and help investors and aspiring investors to understand the dynamics of money management.

Therefore, the younger you start, the better the outcome of investments. In the case of minors, it holds just as true. Investments on behalf of a minor make it a first step towards minors understanding the importance of investments. It is also important to note, however, that investments made on behalf of minors follow some tax savings and exceptions that can be easily utilized as a safer option to incorporate investment awareness in your child’s financial literacy lessons.

However, the issue arises from the taxation and other charges perspectives when the minor reaches the age of major. That age in most countries is set at 18 years of age, however, based on the country of origin, the age may differ. What is important to note here is that once the minor reaches the designated major age, they become independent and therefore, are liable for their own earnings and actions in terms of investments as well.

In case of so, investments are also now taxable however, now an extended horizon of investments are available to the major to explore and continue the investment journey.

Here are a few things about finance, banking, investments, and related fields that you should teach your kids before they become Major:

The Basics

Before you get into details of finance, you must cover the basics. When minor becomes major, no financial transactions allowed in their investments. Therefore, it is neccassary to do few things like:

-Fixing one signature and getting it attested by a bank

-Opening a bank account

-Submitting documents for a PAN card &

-KYC

These documents include Your national ID, your bank details and basic information.

Mutual Fund Investments:

In case of mutual fund investments which opened in name of minors and after attaining majority, first step is to inform your advisor or R&T agent about it and then submitting signature attested by bank. R&T agent informs you after registration of new signature. Minor can then operate his /her mutual fund folio on his/her own.

In case of systematic transactions of mutual funds, AMCs generally sends notification and asks for submitting some documents. Also, folio/account gets frozen for any transaction by guardian. If one fails to submit the documents, minor’s folio gets suspended for any further transactions.

Demat Account:

In case of Demat account, minor turning major, needs to open new demat account on his/her name. Previous account will get closed and all old holdings will get transferred to new demat account.

PPF:

In case of investments on name of minor in Public Provident Fund i.e. PPF, When minor attain major age, he/she can operate the account till its lock-in is over. If minor turns into major and PPF lock-in is over, then also decision of withdrawal or continuing with investment, stays with him/her. In both the option of withdrawal or extending of PPF needs to submit the signature attested by bank.

Some important things to understand by minor after attaining majority are:

Taxation

It is extremely important to help your child understand how taxation works in your country. In India, Here are a few things your minor must know about income taxation. Standard deduction starts for anyone earning above 40,000. Anyone who is earning more than 500,000 gets a rebate on the taxes. The TDS threshold on interest is 40,000.

Understanding the rules of investment

Before beginning, you must teach your minor turning into major about the important rules of investment that never go out of fashion. Also, at this stage, you can start teaching them about basic investment instruments such as equities, FD’s, liquid assets and more. Three major rules are:

• Read and understand more about personal finance & money
• Save and invest wisely
• Understand asset classes & long and short term investments.