This article delves into these questions and provides insights to help make informed decisions when considering opening a minor demat account.
Can a minor open a demat account?
Under the Indian Contract Act of 1872, minors are prohibited from entering into financial agreements. However, under the Companies Act of 2013, every Indian citizen, regardless of age, is allowed to own shares in publicly listed companies. Thus, minors can legally open demat accounts in India.
Although a minor demat account is technically owned by the minor, they cannot actively engage in buying or selling shares. Instead, a parent or legal guardian must supervise the transfer of shares to the demat account of the minor as gift. Therefore, the responsibility of opening, closing and managing the demat account of the minor lies with the parent or legal guardian until the child reaches 18 years of age.
How can one open the demat account of a minor?
Opening the demat account of a minor involves a series of structured steps, though there is no minimum age requirement for it. To start the process online, you will first need to visit the website of a stockbroker associated with either CDSL or NSDL. The broker will prompt you to provide basic information like names, email IDs and phone numbers before proceeding.
Next, you will be asked to provide KYC (Know Your Customer) details for both the minor and the parent or guardian. The necessary documents for opening the demat account of a minor usually include:
- Proof of Identity (PAN card) for both the parent/guardian and the minor.
- Proof of Address (Aadhar card) for both the parent/guardian and the minor.
- The minor’s birth certificate.
- Bank account details of the parent/guardian.
Once you have collected all the necessary documents, you can send them to the stockbroker. If the documents meet the requirements of the broker, they will start opening the demat account. It should be noted that the demat account of a minor cannot be opened as a joint account.
What happens to the account after the minor reaches the age of 18?
On attaining the age of 18 years, the demat account of a minor goes into inactive status. To reactivate it, the account holder has to fill a new application for opening a demat account and submit the necessary documents. Unlike the demat account of a minor, there is no requirement for the signature of the guardian or parent in this process.
Existing shares from the minor’s demat account will be transferred to the new account, giving the account holder full access to trade or invest across all segments, pending approval from the stockbroker.
Advantages of opening a demat account for a minor
Opening the demat account of a minor not only offers an easy online process but also brings several benefits. First, it improves financial planning because mutual funds and equity shares often provide higher returns compared to other investment options. Parents and guardians can effectively manage their children’s finances through this route, allocating funds for various future needs such as college expenses, weddings or career-related relocations. In addition, it fosters financial literacy among children, introducing them to the realm of financial independence. As they delve into the intricacies of the stock market, young people develop crucial life skills essential to navigating the complexities of the world.
Restrictions while opening a demat account for a minor
Certain restrictions apply to demat accounts registered in the name of minors, outlined as follows:
First, only stock trading is permissible. Custodians cannot engage in intraday trading or trade financial derivatives such as futures and options using the demat account of a minor. The high volatility levels of the market present risks unsuitable for minors, limiting transactions to stocks only.
Second, opening a business account in the name of the minor is prohibited by financial regulations. Although brokerage firms typically consolidate trading and demat accounts, minors are prohibited from having trading accounts in their names.
Finally, minors cannot be joint owners of a demat account. Distinct registration processes and regulatory frameworks differentiate demat accounts for adults and minors, preventing joint ownership arrangements in the latter case.
Now equipped with the knowledge of the minimum age requirement and the process to open the demat account of a minor, it is an opportune moment to pave the way for the bright future of your children. The demat account of a minor acts as a platform to nurture and monitor funds earmarked for their future educational endeavors and other essential expenses.
In addition, this experience instills in children an enhanced understanding of the meaning of saving and investing money. Such financial literacy can provide a significant competitive advantage as they mature. Notably, in India, a whopping 76% of individuals surveyed showed limited understanding of financial basics. In contrast, a child who grows up with an online demat account gains invaluable financial literacy from an early age, setting them apart in their financial acumen and preparedness for the future.
Frequently Asked Questions
What is demat account for minor?
A minor’s demat account is a type of demat account opened in the name of a minor, usually by their parent or guardian. It allows minors to hold securities such as stocks, bonds, and mutual funds in electronic format.
What is the minimum age requirement to open the demat account of a minor?
There is no specific minimum age requirement for opening the demat account of a minor.
Can a minor operate the demat account on his own?
No, a minor cannot operate the demat account independently. Transactions must be authorized by the parent or guardian who serves as the registered owner of the account until the minor reaches the age of majority.
Are there any restrictions on trading for minors?
Yes, there are some limitations. Only stock trading is allowed, and intraday trading as well as trading derivatives such as futures and options are not allowed.
What happens to the demat account when the child turns 18?
When the child reaches the age of 18, the demat account becomes inactive. The account owner must then complete a new account opening process to reactivate the account, without the need for the parent or guardian’s signature.
Unlock a world of Perks! From insightful newsletters to real-time stock tracking, breaking news and a personalized news feed – it’s all here, just a click away! Login Now!
Catch all Business News, Market News, Breaking News and Latest News Updates on Live Mint. Check out all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
More or less
Published: 07 Mar 2024, 15:06 IST