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A Demat account is beneficial for minors. As we know, in a regular Demat account, the time required to sell shares is quite relevant. As an online investor, you need to understand the benefits of a demand account and a minor Demat account. Opening both online will be a smart move toward the child’s future planning. You can groom the minor for future planning, which includes education fees, career growth, etc. Another thing with a minor Demat account is that you can store mutual funds, ETFs, shares, etc.
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Demat Account for Minors in India
A Demat account is mandatory for investors as it is the sole and genuine method of trading in the stock market. Demat accounts in Indian trading are maintained by the Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL). The purchase and selling of shares are done through the stockbroker portal, where any adult citizen of India can open a Demat account and take advantage of online trading.
According to the Indian Contracts Act 1872, no minor can execute any transaction which is to be a party to a financial agreement. However, as per the Companies Law Act 2013, any citizen of any age can hold shares of publicly listed companies. A minor Demat account has some limitations, though. So technically a minor cannot buy or sell shares from themselves. The guardian, which will be the parents or a guardian appointed by the court of India, can buy or sell shares in the minor’s Demat account. Opening a Demat account for a minor thus needs a document of the minor as well as parents/guardians. All the decisions of opening, closing, and managing minor Demat accounts will be looked after by the guardian of the minor Demat account.
How to Open a Demat Account for Minors?
To open a minor Demat account for a minor, you need to follow the below steps:
- The PAN details of the guardian
- Proof of birth for the minor
- Identity proof and address for the minor
- Bank details of the minor
The Guardian will need to submit the minor Demat account with the KYC details of both the guardian and minor. After the completion of verification, you will receive the Beneficiary Owner Identification Number (BO ID) and the Demat account number.
Restriction of a Minor Demat account
A minor Demat account comes with several restrictions which are important for the usage of minor accounts so that minor’s holdings are protected from any unauthorised transaction.
- A minor Demat account cannot be a joint Demat account.
- The guardian is liable for any activity in the Demat account till the minor turns into an adult.
- You cannot use the minor account for intraday trading, derivatives, and currency trading.
- Only buying or selling of equity is eligible on a minor Demat account.
What to Do When the Minor Reaches 18 Years?
As the minor reaches the age of an adult (18 years), they will need to raise a request from the brokerage to convert the Demat account into a regular Demat account. Documents that need to be submitted include a PAN card, address proof, Bank statement, and photographs.
Once all the documents are submitted, the guardian’s details will be deleted, and the signatures of the minor will be added as the owner of the Demat account.
The Benefit of a Minor Demat Account
The process of opening a minor Demat account is easy and affordable for everyone. Along with this, there are also some advantages of a minor Demat account.
Future planning
It provides better financial planning for parents for their children. You can invest in equity stocks and mutual funds, which often provide a return over the long run. It is one of the smart ways to invest in the child’s future and ensure a bright future for the children.
Financial knowledge
Opening a minor account for your children exposes them to the financial world. They can explore and understand the importance of financial planning and the stock market. It helps your children in developing skills and gaining knowledge about the workings of the financial market.
Final Thoughts
Investing and getting a return from your savings is not an easy process. It takes planning and knowledge of the financial market. With the digitisation of the stock market and the ability to access your Demat account from anywhere in the world, you can take the opportunity to make a minor account for your children and give them financial support for their future.
Opening a minor account for an individual less than 18 years old is an easy and fast process. All you need to do is partner with a broker like Share India, who can guide you and diversify your financial portfolio. When opening a minor account with a broker like Share India, it’s essential to inquire about their specific brokerage fees and charges to ensure a transparent and cost-effective investment strategy. Use Share India’s brokerage calculator.