Open A Demat Account For Minors - Complete Guide

A Minor Demat Account allows individuals below the age of 18 to hold and manage securities in electronic form, with a guardian managing the account until the minor reaches adult age. Opening a Demat account for your minor child is a strategic financial move that not only encourages a sense of financial responsibility but also lays the foundation for their future financial well being.

Key Highlights

• Opening a Demat account for a minor enables parents/guardians to make long-term investments on behalf of the child.

• It provides an opportunity for minors to learn about the stock market, investments, and the functioning of the stock market from an early age.

• Usage of a minor's Demat account is restricted to stock delivery trading, with prohibitions on engaging in equity intraday trading and dealing with equity or currency derivatives.

Who Can Open a Minor Demat Account?

Investors are required to have a Demat account to electronically store the shares they buy or sell. These accounts are maintained by two primary entities: The Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL). Depository Participants (DPs) facilitate the buying and selling of shares. Usually, any Indian citizen aged 18 or above is eligible to open a Demat account, and this option is also available for joint investors, corporate entities and Non Resident Indians (NRIs).

While the Indian Contracts Act of 1872 prohibits minors from legally entering into financial agreements, the Companies Act of 2013 permits any Indian citizen, regardless of age, to own shares in publicly listed companies. This legal provision allows individuals to open a minor Demat account in India, aligning with the broader framework of the Companies Act of 2013.

While a minor Demat account is technically under the ownership of the minor, the minor cannot independently engage in the buying or selling of shares using the account. In this scenario, a parent or legal guardian takes on the crucial role of the primary party responsible for transferring shares as a gift to the minor's Demat account. Consequently, the entire process of initiating, terminating, a minor's Demat account is overseen by the minor's parent or legal guardian until the child attains the age of 18.

What is the process of online Minor Demat Account Opening ? While there exists no specific age requirement for opening a minor Demat account, a systematic process must be followed. To open a minor Demat account online, one must visit the website of a stockbroker affiliated with either CDSL or NSDL. The broker will ask for basic information such as names, email IDs, and phone numbers before progressing to the next step.

Necessary documents required for opening a minor Demat Account consist the following:

• Verification of identity (PAN card) is required for both the parent/guardian and the minor.
• Verification of address (Aadhar card) is necessary for both the parent/guardian and the minor.
• The minor's birth certificate.
• Bank account details of the parent/guardian.

After collecting all the required documents, you can submit them online to the stockbroker. If the stockbroker finds the documents satisfactory, they will start the process of opening a minor Demat account. It's crucial to emphasise that a minor Demat account cannot be established as a joint account.

Limitations of a Minor Demat Account

When considering opening a demat account for a minor, it's essential to be aware of the limitations that come with it. Various limitations of a minor demat account are listed as follows.

• A minor demat account limits the types of securities and investments a minor can trade or invest in.

• Certain financial instruments, such as derivatives and commodities, may be inaccessible to minors with demat accounts.

• A minor demat account usually requires parental or guardian supervision for any transactions.

• The necessity for parental consent or joint ownership can hinder the minor's ability to make independent investment decisions.

• Minors with demat accounts have limited control over their investments.

• They may not be able to execute trades or manage their portfolio without parental intervention, leading to a lack of autonomy.

What Happens to the Demat Account When a Minor Becomes an Adult?

Upon turning 18, a minor's Demat account becomes inactive. Consequently the account holder is required to fill out a new Demat account opening application form and provide the necessary documents. Unlike the procedure for a minor Demat account, the signature of a guardian or parent is not required. Existing shares are transferred to the new account, granting the account holder the ability to engage in trading or investments across all segments, subject to approval from the stockbroker.

What are the Benefits of a Minor Demat Account?

A Minor Demat Account offers several benefits, providing a valuable financial platform for young investors. Various Benefits of a minor demat account are explained as follows:

1. Enhanced Financial Planning

Equities and mutual funds frequently yield superior returns compared to alternative investment instruments. A minor Demat account empowers parents/guardians to more effectively strategize for their children's financial future. Consequently, the account becomes a valuable tool for saving towards important milestones such as higher education, weddings, job relocations, and more.

2. Encourages Financial Literacy

A Minor Demat account encourages children to understand concepts such as savings, investments, and risk management from an early age. As they explore the dynamics of the stock market, youngsters gain practical insights into economic trends, company performance, and the impact of global events on stock markets.

Conclusion

A Minor Demat Account stands as an important tool in encouraging financial literacy and responsible financial management for the younger generation. With a focus on enhanced financial planning, parents can strategically utilise equities and mutual funds to secure their children's financial future.