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Did you know that there's no minimum age limit for investors? That's right—even your children can start their investment journey as early as possible with the help of a minor Demat account!
A minor Demat account could be an excellent way to introduce your children to the investing world. It can provide them with early exposure to financial literacy and the investing market. This account not only helps secure your child's financial future but also establishes valuable skills that can last a lifetime.
In this article, we will provide you with all the necessary information regarding a minor Demat account, its eligibility, documentation, and the differences between minor and regular accounts.
Table of Contents:
- What is a Minor Demat Account?
- Can a Minor Open a Demat Account?
- How to Open a Minor Demat Account?
- How is a Minor Demat Account Different from a Regular Demat Account?
- What happens when the minor turns 18?
- Which Brokers Allow Minor Demat Account Openings in India?
What is a Minor Demat Account?
A minor Demat account is a type of dematerialised account specially designed for individuals below the age of 18 years to hold and manage securities like stocks and bonds.
But remember, minors cannot independently trade or sell securities. They can only own shares, and their account should be managed by a parent or a guardian. Confused about who can be considered as a guardian? Have a look.
Guardian → A person appointed by the court in the absence of both father and mother
This account allows minors to invest in stocks, mutual funds, and other securities until they reach the age of majority, at which they can lawfully take full control of their account.
In short, here are the key features of a minor Demat account:
- Supervised by Parent/Guardian
- No trading allowed for minors
- Provides investment opportunities for future financial growth
Can a Minor Open a Demat Account?
Let's understand if it is legal for a minor to open a Demat account in India.
According to the Companies Act 2013, any individual, regardless of age, can own shares in publicly listed companies. However, minors are not legally allowed to enter into financial contracts under the Indian Contract Act of 1872. So, a parent/guardian must operate the account on their behalf.
So, if a minor can open a Demat account in his name, then understanding the procedure of opening it will be the next crucial step.
How to Open a Minor Demat Account?
Firstly, there is no minimum age required to open a minor Demat account, and it can be comfortably opened online. However, opening an account involves a series of structured steps that you, as a parent or guardian, should follow:
- You must visit the website of a broker affiliated with CDSL or NSDL
- Provide basic information such as name, email ID, and phone number
- Give necessary documents, including:
- PAN card (for proof of identity) of both you and the minor
- Aadhaar card (for proof of address) of both you and the minor
- Minor's birth certificate
- Your bank account details
- Submit two KYC (Know Your Customer) forms for both you and the minor
After submitting all the necessary details and uploading the required documents, you have to wait for the broker to verify the submitted information.
Once verified, the minor's Demat account will be activated, allowing it to hold stocks and securities. Also, keep in mind that a minor's Demat account cannot be opened as a joint account.
How is a Minor Demat Account Different from a Regular Demat Account?
The primary difference between a minor Demat account and a regular Demat account lies in who can operate it:
- Control of parent/guardian: A minor Demant account requires active management by a parent or guardian until the minor turns 18. As a parent or guardian, you will be responsible for all transactions and decisions regarding the account of your child.
- Trading Restrictions: Minors can only engage in equity delivery trading. They are prohibited from intraday trading or trading in derivatives.
- No joint accounts: A minor cannot be a part of any joint Demat account, or simply a minor Demat account cannot be opened as a joint account.
After knowing all the limitations of a minor Demat account, there might be a question coming to your mind, right? Let's answer it in detail.
What happens when the minor turns 18?
When a minor reaches the age of majority, i.e., 18 years, the existing minor Demat account becomes inactive. Then, the account needs to be re-verified and transferred into the individual's name by submitting a new Demat account application.
This process again involves providing updated documentation such as proof of identity and address, as well as bank details in the individual's (then an adult) name. The parent's or guardian's details and their signature will be deleted, and the applicant's signature will be obtained on all forms.
The shares held in the minor's account will be transferred to this new adult (regular) Demat account.
In India, there are multiple stockbrokers that provide you with the facility to open a minor Demat account for your child. Let's get to know some of those names.
Which Brokers Allow Minor Demat Account Openings in India?
Several brokers in India provide the facility of opening minor Demat accounts, including:
These brokers providing minor Demat account opening services may differ slightly in terms of features, fees, and account management processes. So, it's advisable to check their specific guidelines before proceeding to open an account.
Conclusion
Opening a minor Demat account for your child can be beneficial for their financial upskilling. Moreover, your child can learn about investing from an early age.
Although these accounts come with certain restrictions., They allow young investors like your child to start building a diversified portfolio of stocks and mutual funds. Plus, investments made during his/her childhood have more time to grow due to compounding interest.
As your child reaches adulthood, the minor Demat account can be smoothly transitioned to a regular Demat account, giving your child full control over their investments.
Additionally, as a parent or guardian, you can allocate funds specifically for your child's future needs.
