What is a Minor Demat Account?
A Demat account for minors allows parents or legal guardians to invest in the Indian stock market on behalf of their children. The process is simple and can be done online with a registered Depository Participant (DP) such as a stockbroker or bank. Here’s a step-by-step guide to opening a Demat account for minors:
Step-by-Step Process to Open a Minor Demat Account Online
Step
| Description
|
1. Choose a Depository Participant (DP)
| Select a registered stockbroker or depository participant to open the Demat account for a minor. Ensure the DP supports minor accounts.
|
2. Fill Out the Minor Demat Account Form
| Visit the DP’s website or office and fill out the Demat account opening form. Choose “Minor” as the account type.
|
3. Submit Required KYC Documents
| Upload or provide the necessary KYC documents (see the document list below). The guardian’s documents must also be submitted for verification.
|
4. Link to Guardian’s Trading Account
| Since minors cannot trade independently, the guardian must have an active trading account linked to the minor's Demat account.
|
5. Complete e-KYC Verification
| Verify details using Aadhaar-based e-KYC or in-person verification, depending on the DP’s process.
|
6. Signature and Declaration
| The guardian must sign the declaration stating they are responsible for the minor’s investments. Minors do not need to sign until they turn 18.
|
7. Account Activation
| Once verification is complete, the minor’s Demat account is activated, and investment can begin.
|
Documents Required to Open a Minor Demat Account
Both the minor and the guardian must provide the following documents:
Document
| Who Needs to Submit?
| Purpose
|
Minor’s Birth Certificate
| Minor
| Proof of age and identity
|
Aadhaar Card
| Minor & Guardian
| Identity & address verification
|
PAN Card
| Guardian only
| Required for financial transactions
|
Guardian’s Income Proof
| Guardian
| Required if investing in mutual funds
|
Guardian’s Bank Statement
| Guardian
| Linked for fund transfers
|
Guardian’s Photograph
| Guardian
| For account profile
|
Since minors do not have PAN cards, the guardian’s PAN card is used for KYC verification.
Process to Open an Offline Minor Demat Account
Opening a Minor Demat Account offline requires physical submission of documents and guardian authorization. The guardian, either a parent or legal representative, manages the account on behalf of the minor until they turn 18. The offline application involves obtaining a form from a depository participant (DP), filling it out, and submitting the required documents. Once the in-person verification (IPV) is completed, the account is processed and activated.
Types of Documents
| Requirements
|
Application Form
| Filled and signed by the guardian on behalf of the minor.
|
Identity Proof
| PAN card of the guardian (mandatory), Aadhaar or any other accepted government ID.
|
Address Proof
| Aadhaar card, passport, voter ID, or any accepted utility bill.
|
Minor’s Age Proof
| Birth certificate or school leaving certificate.
|
Bank Details
| Cancelled cheque or bank statement of the minor’s account (where applicable).
|
Photographs
| Passport-sized photos of both the minor and the guardian.
|
In-Person Verification (IPV)
| Guardian’s physical presence at the DP branch for verification.
|
The Minor Demat Account remains under the guardian’s control until the minor reaches adulthood, after which it can be converted into a regular demat account.
Pros of Minor Demat Account
- Encourages Early Investment: A minor demat account helps parents invest early for their child's future goals such as education, marriage, or relocation expenses.
- Financial Literacy: Opening a minor demat account introduces children to the stock market, building awareness of savings and long-term wealth creation.
- No Age Barrier: There is no minimum age requirement to open a minor demat account, allowing financial planning to start early.
- Passive Growth Opportunity: Investments made in a minor demat account can compound over time, building wealth without active trading.
- Guardian-Controlled Access: A parent or guardian supervises the minor demat account, ensuring responsible investment decisions.
- Supports Mutual Fund Investing: A minor demat account enables investment in mutual funds, which often deliver better returns than savings instruments.
- Digital Opening Process: Most brokers now allow online opening of a minor demat account, making the process simple and paperless.
Cons of Minor Demat Account
- No Independent Opening: A child cannot open a minor demat account independently; it must be done by a guardian.
- No Trading Facility: A minor demat account cannot be linked with an online trading account, which restricts buying and selling of shares.
- Limited Transaction Control: The minor demat account is operated entirely by the guardian, with no real-time decision-making by the minor.
- KYC Documentation: Opening a minor demat account requires submission of extra documents for both the child and the guardian.
- Transition on Majority: When the minor turns 18, the minor demat account must be converted into a regular demat account, which involves additional formalities.
- Restricted Trading Options: Derivatives and intraday trading are not allowed under a minor demat account, limiting investment flexibility.
Restrictions of a Minor's Demat Account
A demat account can be opened in the name of a minor by their parent or legal guardian. However, certain limitations are applicable to such accounts. These restrictions are meant to ensure regulatory compliance and safeguard the minor’s financial interests.
1. Trading Not Permitted
Minor demat accounts cannot be used for intraday trading or derivative trading. Only delivery-based buying and selling of securities is allowed.
2. Guardian’s Control
The account must be operated by the parent or legal guardian until the minor reaches the age of 18. All transactions require their consent and oversight.
3. KYC Restrictions
The guardian’s KYC details are mandatory at the time of account opening. Separate KYC in the minor’s name is not accepted until they reach legal age.
4. No Joint Holding
Minor demat accounts cannot be opened jointly. Only a single holder structure is allowed with guardian authority.
5. Account Conversion on Majority
Once the minor reaches 18, the account must be converted into a regular demat account after completing a fresh KYC in the individual’s name.
Importance of a Minor Demat Account
A minor demat account allows guardians to hold securities on behalf of individuals below 18 years of age. While minors cannot operate the account directly, it can be managed by a parent or legal guardian until the child reaches the age of majority.
1. Early Exposure to Financial Markets
Opening a demat account in a minor’s name introduces them to the basics of investing. It helps build awareness about stocks, bonds, and long-term savings from a young age.
2. Long-Term Wealth Planning
Investing early in a minor’s name can support future financial goals. The extended investment horizon enables funds to remain undisturbed, facilitating gradual capital growth over time.
3. Joint Financial Involvement
It offers a way for parents to include children in basic financial discussions. This involvement can gradually help them understand financial decision-making in a structured manner.
4. Regulatory Compliance and Control
Minor demat accounts come with controlled access. Since transactions must be managed by a guardian, it ensures that activities stay within defined regulatory limits.
Key Points to Remember When Opening a Minor Demat Account
- No Trading for Minors – A minor Demat account can only be used for holding shares; active trading, F&O, and intraday trading are not allowed.
- Only Delivery-Based Investments – The account can only be used for investing in stocks, mutual funds, and bonds.
- Guardian’s Responsibility – The legal guardian must operate and manage the account until the minor turns 18 years old.
- Mandatory Conversion at 18 – Once the minor turns 18, they must complete KYC formalities to convert the account into a regular Demat account.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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