Introduction

With the Indian economy growing rapidly, the capital markets are becoming increasingly appealing to investors both locally and globally. This growing interest isn’t limited to adults; minors are also looking to take advantage of market opportunities. But how can a minor open a Demat account, and what are the specific requirements? This article provides a thorough overview of the process for setting up a Demat account for minors.

Eligibility for a Minor Demat Account

In India, a Demat account is necessary for holding shares in electronic form. These accounts are regulated by two main entities: Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). Stockbrokers, acting as Depository Participants (DPs), handle the actual buying and selling of shares.

While anyone over the age of 18 can open a Demat account, minors are also eligible, despite being unable to enter into financial contracts under the Indian Contracts Act of 1872. According to the Companies Act of 2013, any Indian citizen can own shares in publicly listed companies, irrespective of age. This provision allows for the creation of Demat accounts for minors, with the account managed under the supervision of a guardian.

Although the minor technically owns the Demat account, they are not permitted to trade actively. Instead, a parent or legal guardian manages the account and is responsible for all transactions, including transferring shares as gifts to the minor. The parent or guardian retains full control over the account until the child reaches 18 years of age.

Steps to Open a Minor Demat Account Online

There is no minimum age requirement to open a Demat account for minors. However, specific steps must be followed to set up the account. To initiate the process of opening a Demat account online for a minor, you must visit the website of a stockbroker associated with either CDSL or NSDL. You will first need to provide basic details, such as the names, email addresses, and contact numbers of the minor and the guardian. Following this, you will need to submit Know Your Customer (KYC) documentation for both the minor and the parent or guardian.

To establish a minor Demat account, you must provide PAN and Aadhar cards for both the guardian and the minor, the minor’s birth certificate, and the guardian’s bank account details. Once these documents are submitted and verified by the stockbroker, the Demat account for the minor will be set up. This account must be in the minor’s name only and cannot be a joint account. The guardian will manage the account until the minor turns 18.

Restrictions on a Minor Demat Account

While it is possible to open a Demat account online for minors, there are certain limitations to consider. Minors are not allowed to operate their accounts independently, and all activities require the guardian’s involvement. Additionally, minors are limited to equity delivery trades and are not permitted to engage in intraday trading or trade in equity and currency derivatives. Moreover, a minor’s Demat account cannot be linked to an online trading platform.

What Happens When a Minor Reaches Adulthood?

Once the minor turns 18, their Demat account will be temporarily deactivated. At this point, the new adult must complete a standard Demat account opening form and provide the necessary documents. The signature of the guardian is no longer needed for this process. All securities held in the minor’s account will be transferred to the new account, enabling the individual to trade or invest across different market segments, subject to the approval of the stockbroker.

Advantages of a Minor Demat Account

Opening a Demat account for minors offers several benefits beyond just the ease of the online setup process:

• Enhanced Financial Planning: Investing in equity stocks and mutual funds often provides higher returns compared to other forms of investment. A minor Demat account allows parents or guardians to plan for their child’s financial future, making it easier to save for major expenses like education, weddings, or relocating for work.
• Encourages Financial Literacy: Introducing minors to the financial world through a Demat account can foster a sense of financial independence from an early age. As they engage with the stock market, they develop essential financial skills that will help them navigate their future economic decisions.

Conclusion

Understanding how to open a Demat account for minors and the advantages it offers can be invaluable for a child’s financial future. By setting up a minor Demat account, parents can lay the foundation for sound financial habits. Consider using the best trading app in India for beginners to make this process as straightforward and beneficial as possible for your child.