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IPOs are not a novel idea. They have been around for more than four centuries and provide listed corporations with significant capital. Furthermore, investors are impressed by the company’s erratic behaviour and reward them for their investments with attractive returns. IPOs can produce attractive returns, but investors must understand that they can also experience upswings, downswings, and oscillations. The amount of volatility an investor can tolerate and afford to make depends on their financial situation, risk tolerance, and other factors. Today, let’s explore how to apply for an IPO in a minor account. It is a great idea to apply for an IPO in the minor’s name. There are several advantages to this.
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Why Invest in an IPO in a Minor’s Name?
Before delving into applying for an IPO in a minor’s name, let’s glance at its beneficial aspects.
For starters, investments made in the name of a child are more tax advantageous. The fund collected in the child’s name will be deemed their own once they reach adulthood. The earnings are not combined with those of the parents. The only one who pays taxes on them is the child. Children often have no additional sources of income. Thus, their tax obligations may be little or nonexistent, but they are almost always lower than those of their parents, who may have a high tax rate.
The much more systematic approach to investment for a child’s financial aspirations is also aided by investing in the child’s name. It prevents the desire to use money set aside for a child’s future needs when an emergency arises. Youngsters who learn the habit of Systematic Investment Plan (SIP) deduction from their bank account as they become older are also more likely to keep up this discipline once they start working and can deduct it from their pay.
Process of Applying for an IPO in a Minor’s Name
We shall now learn about the steps to apply for an IPO in a minor’s name. Make a proper note of it if you intend to apply for an upcoming IPO in your child’s name. Here’s a guide that shall help you complete the entire procedure very conveniently.
- Step 1: Open a Demat account in the minor’s name
Having a Demat account is the first requirement for a minor who wants to apply for an IPO. However, a Demat account must have a PAN card as the verification ID. The minor should be provided with a Demat account under their own name. Previously, as juveniles lacked a trustworthy source of income, they were unable to obtain a PAN card. This process requires the involvement of elders. So, it had to be done by their parents. But this is not the case nowadays. One can easily get a PAN number if he/she has the requisite documents like Aadhaar. Even those younger than the age of 18 can obtain a permanent account number (PAN). - Step 2: Link the minor’s bank account with their parent’s bank account
A child is not permitted to handle trade accounts despite having access to a Demat account. So, in order to grant the stockbroker access to a minor’s accounts, their Demat account needs to be connected to one of their parents’ trading accounts. The Demat account must be connected to the minor’s bank account in order for the minor to express interest in any IPO, and the Know Your Customer (KYC) documents must be completed and filed in both the minor’s and guardians’ names. - Step 3: Submit the IPO application
Three methods are available for submitting an IPO application on behalf of a minor: a paper application form handed over to the branch; a net-banking Application Supported by Blocked Account (ASBA) IPO form. Children above 15 can apply through UPI through their brokers as well.
What Happens when Your Minor Attains the Age of 18 Years
As youngsters reach the age of 18, they can use their parents’ ID and account to apply for their own IPO. They may also easily terminate their old accounts and start new ones in their own names with all of their trading accounts, bank accounts, and PAN cards connected. Also, minors can convert their old account into their own if they don’t wish to shut it off by presenting just their own official papers and not those of their parents.
Final Take
Your child will have a strong financial foundation when they become adults if you make an IPO investment in their name. This can help them become financially independent and relieve financial pressure while deciding what to study. Most well-known brokerage houses nowadays offer the facilities for minors to begin investing. Needless to mention, they shall be subject to rules and regulations, as we discussed earlier. You can reach out to us anytime, as we at Share India believe that every parent must start investing in their child to offer them a financially secure future.