With the Indian economy experiencing rapid growth, the nation’s capital market has become increasingly appealing to both domestic and international investors. Interestingly, this interest isn’t limited to adults; even minors are entering the market, seeking to benefit from its promising prospects. But how can minors participate in this financial landscape, and what is the minimum age requirement for opening a demat account?
This article explores these questions and offers insights to help individuals make informed decisions when considering opening a demat account for a minor.
Is it possible for a minor to open a demat account?
According to the Indian Contracts Act of 1872, minors are prohibited from entering into financial agreements. However, the Companies Act of 2013 permits any Indian citizen, regardless of age, to own shares in publicly listed companies. Consequently, minors can legally open demat accounts in India. While a minor technically owns the demat account, they cannot actively engage in buying or selling shares. Instead, a parent or legal guardian must oversee the transfer of shares to the minor’s demat account as a gift. Therefore, the responsibility of opening, closing, and managing the minor’s demat account rests with the parent or legal guardian until the child turns 18.
How does one go about opening a demat account for a minor?
Opening a demat account for a minor involves several structured steps, with no specific minimum age requirement. To begin the process online, individuals must visit the website of a stockbroker associated with either CDSL or NSDL. The broker will then request basic information such as names, email IDs, and phone numbers before proceeding. Following this, individuals will need to provide KYC (Know Your Customer) details for both the minor and the parent or guardian. The necessary documents typically include:
- Proof of Identity (PAN card) for both the parent/guardian and the minor.
- Proof of Address (Aadhar card) for both the parent/guardian and the minor.
- The minor’s birth certificate.
- Bank account details of the parent/guardian.
Once all the required documents are collected, they can be submitted to the stockbroker. If the documents meet the broker’s criteria, they will proceed to open the demat account. It’s important to note that a minor’s demat account cannot be opened as a joint account.
What happens to the demat account once the minor turns 18?
Once the minor reaches the age of 18, their demat account becomes inactive. To reactivate it, the account holder must complete a new demat account opening application form and provide the necessary documents. Unlike with a minor’s demat account, there is no requirement for the parent’s or guardian’s signature in this process. Existing shares from the minor’s demat account will be transferred to the new account, granting the account holder full access to trade or invest across all segments, pending approval from the stockbroker.
Benefits of opening a demat account for a minor
Opening a demat account for a minor not only offers a convenient online process but also provides several benefits. Firstly, it facilitates financial planning, as mutual funds and equity stocks often yield higher returns compared to other investment options. Parents and guardians can effectively manage their children’s finances through this avenue, allocating funds for various future needs such as college expenses, weddings, or career-related relocations. Additionally, it promotes financial literacy among children, introducing them to the realm of financial independence. As they delve into the intricacies of the stock market, youngsters develop essential life skills crucial for navigating the complexities of the world.
Restrictions when opening a demat account for a minor
Certain restrictions apply to demat accounts registered in the name of minors:
- Only equity trading is permitted. Guardians cannot engage in intraday trading or trade financial derivatives such as futures and options using a minor’s demat account. The market’s high volatility levels pose risks unsuitable for minors, limiting transactions solely to equities.
- Opening a trading account in the minor’s name is prohibited by financial regulations. Although brokerage firms typically consolidate trading and demat accounts, minors are barred from having trading accounts in their names.
- Minors cannot be joint holders of a demat account. Distinct registration processes and regulatory frameworks differentiate demat accounts for adults and minors, precluding joint ownership arrangements in the latter case.
With this knowledge of the minimum age requirement and the process for opening a demat account for a minor, now is an opportune time to pave the way for your children’s bright future. A minor’s demat account serves as a platform to nurture and monitor funds earmarked for their future educational endeavors and other essential expenses.
Furthermore, this experience instills in children a heightened understanding of the significance of saving and investing money. Such financial literacy can provide a significant competitive advantage as they mature. Notably, in India, a substantial 76% of individuals surveyed demonstrated a limited grasp of financial fundamentals. In contrast, a child who grows up with an online demat account gains invaluable financial literacy from an early age, setting them apart in their financial acumen and preparedness for the future.
FAQs
What is a demat account for a minor?
A minor’s demat account is a type of demat account opened in the name of a minor, usually by their parent or guardian. It allows minors to hold securities such as stocks, bonds, and mutual funds in electronic format.
What is the minimum age requirement to open a minor’s demat account?
There is no specific minimum age requirement for opening a minor’s demat account.
Can a minor operate the demat account on their own?
No, a minor cannot operate the demat account independently. Transactions must be authorized by the parent or guardian who acts as the registered holder of the account until the minor reaches adulthood.
Are there any restrictions on trading for minors?
Yes, there are certain restrictions. Only equity trading is permitted, and intraday trading as well as trading in derivatives like futures and options are not allowed.
What happens to the demat account when the child turns 18?
When the child reaches the age of 18, the demat account becomes inactive. The account holder must then complete a new account opening process to reactivate the account, without the need for the parent or guardian’s signature.
