What is a Minor Demat Account?
A minor Demat account is an account designed for individuals under 18. It is used to hold securities in electronic form and is typically managed by a guardian on behalf of the minor. It’s similar to a bank account, but instead of holding cash, it has investments such as stocks, bonds, and mutual funds.
Though a guardian can open a minor’s Demat account, the minor can only make transactions once it becomes an adult after which, the account can be transferred to their name.
Minor Demat accounts can be a valuable tool for introducing minors to the world of investing or for saving money for their future financial needs. However, it is essential to carefully consider any investment decisions made on behalf of a minor, as investing carries inherent risks.
Who Can Open a Minor Demat Account in India?
The parents or guardians can open a minor Demat account. Minors can have a Demat account in India because, according to the Companies Act 2013, any Indian citizen, regardless of age, can hold shares of publicly listed companies. However, though the account belongs to the minor, they cannot buy or sell shares independently. Instead, the minor’s parent or guardian must act as the leading party to transfer shares to the minor’s Demat account as a gift.
A minor Demat account can only be opened by the minor’s parent or legal guardian, who retains all rights related to the account’s opening, closing, and management until the minor reaches the age of 18.
What is The Process to Open an Online Minor Demat Account?
To open a Demat account for minors, remember that it can’t be a joint account. Consider the following steps to open a minor Demat account:
Step 1: Go to a stockbroker website showing NSDL or CDSL
Step 2: Provide basic information like name, email address, mobile number, etc.
Step 3: If you are a parent or a guardian of the minor, provide Know Your Customer (KYC) details
Step 4: Provide valid documentation like a PAN card, Aadhar card, minor’s birth certificate, and bank account details.
After the submission of relevant documentation, the stockbroker will analyze it. If they find it satisfactory, you will have your minor Demat account in no time.
Limitations of a Minor Demat Account
There are four major limitations of a minor Demat account. Let’s take a look:
- A minor’s parent or guardian must provide documentation to open a minor Demat account.
- A minor Demat account can only be used for equity delivery trading.
- Minors cannot trade equity intraday, equity derivatives, or currency derivatives using a minor Demat account.
- A minor Demat account cannot be linked to an online trading account.
What Happens When a Minor Turns 18?
When a minor turn 18, a minor Demat account becomes inoperative and must be converted into a regular Demat account. You must submit a new Demat account opening application form and the required documents to do this.
Unlike the process for opening a minor Demat account, a guardian’s or parent’s signature will not be necessary. Any shares held in the minor Demat account will be transferred to the new account, and your child will be able to trade or invest in all segments, subject to the approval of their stockbroker. This marks an important milestone in your child’s financial journey, as they can now control their investments and make their own investment decisions.
Benefits of a Minor Demat Account?
If you are a parent or a guardian, there are three major benefits of opening a minor Demat account. Take a look:
1. You can Save for Your Child’s Future
As a child grows, parents usually face various financial needs for which they usually take loans or struggle to gather the necessary funds. So why not start saving and planning for your child’s future expenses now? Opening a minor Demat account and putting in money is a great way to secure your child’s future and manage expenses like your child’s education abroad to your child’s wedding.
2. Early Financial Education
Children are usually not concerned about where their pocket money comes from until they get it from their parents regularly. Unbeknownst to them, parents struggle to provide for their children. Therefore, educating your children about investment and trading from a young age will do wonders for them as they grow up. When they turn majors, they would’ve already learned to trade and can do well in investment and trading.
3. IPO Allotment
With a minor Demat account, you can purchase IPO allotment. Once your child has turned 18, they will receive good returns.
You may complete the following steps to open a Demat account online for a minor:
Visit the website of a stockbroker that has NSDL or CDSL registration.
Enter your name, email address, and mobile number as well as other essential details.
Fill out the Know Your Customer (KYC) form if you are the minor’s parent or legal guardian.
Include all required paperwork, such as your PAN card, Aadhar card, minor’s birth certificate, and bank account information.
The minor Demat account will be opened once your supporting documents has been confirmed.
There is no minimum age restriction. Anyone under the age of 18 is permitted to open a Demat account with the presence of a legal guardian.
The most suitable Demat account in India for minors may change depending on your unique needs and preferences. You can take into account well-known stockbrokers with a solid track record, agile online resources, and affordable prices. Find the solution that best fits your needs through conducting some research and comparing your possibilities.
To sell shares from a minor Demat account, you need to wait until the minor turns 18 years old. Once the minor reaches adulthood, the Demat account can be converted into a regular account. You must submit a new Demat account opening application form and the required documents for this conversion. Afterward, you or the minor can sell the shares independently through the regular Demat account.