How to Open a Minor Demat Account?
A Demat account to trade in securities can only be opened for individuals over the age of 18 years. However, a minor Demat account can be opened for anyone under the age of 18 years in India and is used to store the securities under the name of a minor. As per the norms, the minor cannot buy or sell securities. The parent/guardian can transfer securities to the minor Demat account as a gift. A minor Demat account can be opened and operated by the minor’s parents or legal guardian until the minor turns 18 years old.
Once the minor turns 18, a request can be raised to convert the minor account to a regular Demat account. Read on to understand how a minor Demat account works and the eligibility criteria.
How Does a Demat Account Work?
A Demat account stands for a Dematerialized account, and it functions just like a regular bank account except that it is used for shares and other investment holdings.
All investments can be kept in an electronic format with minimised threat of theft or loss. When you use a Demat account, all your transactions are recorded and accounted for. It helps monitor your investments and also keeps your financial records clean and up to date.
Reasons for Opening a Minor Demat account
Safe handling of shares is vital. Having them in physical form could lead to loss or theft, or damage. A Demat account is an answer to all these problems. Here are some reasons to open a Demat account:
1. Enhanced Security and Better Planning
Stocks and mutual funds have historically provided better returns than other investment avenues. By opening a minor Demat account, guardians or parents can plan their children’s finances early on and cash on excellent returns.
2. Encouragement of Financial Literacy
The importance of financial literacy cannot be stressed enough. Teaching your children about investing and saving from a very young age can help them develop a knack for saving money. It helps them imbibe important life skills early on to survive in the real world. A minor Demat account can be the first step toward your child’s financial independence.
3. Easy Handling of Your Holdings
A Demat account helps you easily handle different forms of investments. It also provides better-enhanced security for your holdings while enabling easy transactions.
Eligibility to Open a Minor Demat Account
The eligibility criterion is simple for a minor to open a Demat account in India.
There is no age limit for investing in the Indian stock markets. Anyone is allowed to open a Demat account. You only need to be an Indian citizen to open a Demat account.
However, a minor Demat account can be opened only for someone below the age of 18 years. It is to be opened by the minor’s guardian/parent, and the minor gains control of the account only after the age of 18 years.
You will also require a few documents for the KYC verification. It confirms your address, income, identity, etc. The documents required for an online application must be scanned and uploaded in the necessary format.
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Documents Required for Minor Demat account
Several different documents are required to be submitted before you open a Demat minor account. Apart from the KYC documents, the guardian must submit the following documents:
1. Proof of Identity
Any proof of identity like a PAN card, Adhaar card, passport, or any relevant document can be submitted as valid identity proof. Along with these, you will also require two recent passport-size photographs.
2. Proof of Address
Passport, voters-id, Adhaar card, etc., can be submitted for proof of address. You may also be asked to submit utility bills or a bank account statement as proof of address. Proof of address in the name of your child or spouse is also accepted.
3. Proof of Income
Income proofs are a mandatory requirement for opening a Demat account. A copy of your ITR, slip of acknowledgement of the filed ITR, Form 16, or a salary slip, bank account statements, etc., can be used as proof of income.
Additionally, you must submit identity proofs for your minor with passport-size photographs. The PAN details of the minor, proof of birth like a birth certificate, and address proof are also needed.
How to Open a Minor Demat Account
Opening a minor Demat account can be done online or through the conventional method by filling out an application.
When it is done offline, you must fill out an application for opening the account with the relevant details of both the minor and the guardian. Two different KYC applications have to be provided with all the necessary signatures. You will also need to submit copies of all the proofs mentioned above.
When done online, general details must be filled out on the website, including telephone numbers, email IDs, etc. The KYC forms must be carefully filled out next and submitted with scanned copies of all the necessary proofs.
What Are the Benefits of a Minor Demat Account?
Demat for minors have several benefits have the following benefits:
1. Smart and Enhanced Financial Planning
Minor Demat accounts help you have a secure financial future for your children. They provide a route of smart saving for the child’s future use. People generally save money for the child’s higher education, marriage, gifts, relocation, etc.
2. Financial Literacy
Understanding and imparting the skills needed to survive in the long run is a tedious task. Having a minor Demat account is the first step in teaching your children about investing. It is the first step toward financial independence.
3. Security
To plan for contingencies is important. Early investments made in your children’s name can help them have something to fall back on when things are not going well or during emergencies. A Demat account helps you save for your children’s future without hassle.
Limitations of a Demat Account for Minors
Although Demat accounts for minors have several benefits, they also have some limitations. One of the major limitations of having a minor account is that the child cannot operate, manage, or trade using their account. Here are some of the other limitations of Demats for minors:
- A child cannot be a joint holder of a Demat account, even if a major is the other account holder.
- Demats for minors cannot be linked with trading accounts.
- The account shall only receive control of the minor after the minor attains the age of 18 years.
- The minor accounts are rigid trading accounts and cannot be of the trading type, equity derivative, equity intraday, etc.
What Happens When the Minor Crosses 18?
When a minor turns major, the Demat account ceases to be operational. The account holder is required to submit a fresh application for re-opening the Demat account. A guardian’s or parent’s signatures are not required while opening the Demat account when the minor turns major. Furthermore, if there are any existing shares, they will be transferred to the new Demat account, and the individual can then invest or trade in all segments.
Final Word
Minor Demat accounts can be a great way to secure your child’s future and also teach them the importance of financial planning and literacy. The account remains in the purview of a guardian/parent and can be assessed by the minor only after attaining the age of 18. For all its limitations, this kind of account can be a great way of instilling financial discipline in children.
FAQs
Ans: Upon a guardian’s demise, a death certificate, along with the appointment of the new guardian, is to be submitted. The new guardian must complete the KYC procedures to resume using the minor account.
Ans: The child’s parent or a court-appointed guardian is allowed to be the guardian of the minor. They are responsible for all the activity pertaining to the account.
Ans: You transfer the shares into a guardian’s account to conduct any form of transaction.
Ans: Yes, PAN details of both the guardian and the minor are needed for opening a minor Demat account.
Ans: With concerning a minor Demat account, the guardians are only permitted to trade in equity. Moreover, guardians cannot open a trading account in a minor’s name. A minor also cannot be a joint account holder of a Demat account. Additionally, different regulations apply to Demat accounts for minors and adults, and the registration process also differs for both.
