Opening Demat Account For Minors

A demat account or a dematerialized account is mandatory to buy and sell shares and for holding financial instrument like mutual funds, securities, bonds, insurance, etc. It is like an electronic storage box and it is safe, secure, and fast. Anyone who is above the age of 18 and a resident citizen of India can open a demat account. However, in India minors are also allowed to have a demat account.

Legally, any Indian citizen, irrespective of their age, can hold shares of publicly listed companies. This in turn makes it necessary for the minor to have a demat account. But in case of a minor, their age does not allow them to enter into financial agreements or execute transactions in any form. The demat account for the minor can be opened only by the natural parents, either by the father or in his absence the mother can open the account. If both the natural parents are absent, a court appointed legal guardian can open the account for the minor.

A minor can open a trading account also, but a minor cannot be a joint owner in a joint demat account.

Operating a Minor’s Demat Account:

The minor’s demat account can be operated only by the guardian. The guardian is legally authorized to open, operate and close the account as they deem necessary.

Permissible Activities:

While a demat account can be opened for a minor, there are several restrictions on the activities that can be performed from the account.

  • Minors can trade in equity delivery trades only.
  • Minors cannot do intraday trade of equities.  Equity derivatives and currency derivative trading is also not permitted.
  • Minor can invest in IPO and receive securities as a gift or donation, transfer between family members, or implementation of regulatory orders.
  • Minor cannot buy or sell other financial instruments and cannot enter into contract with brokerages for the same.
  • A trading account for the minor can be used only for sale of securities.

Guide to Opening a Demat Account for a Minor

The steps for opening a demat account for a minor is very similar to those for opening a demat account for an adult. But there are a few extra steps and relevant documents that are required in the case of a minor.

  • The first thing to remember is that only a legal guardian can open a demat account for the minor. The legal guardian can be parents, biological or adoptive, or in the absence of parents, a court appointed guardian. The guardian will fill all the forms with the details of the minor and sign on behalf of the minor.  Documents proving guardianship like the minor’s birth certificate and in the case of a court appointed guardian relevant legal documents to this effect should be submitted at the time of opening the demat account.
  • The child must have a PAN card and Aadhaar card and both cards should be linked.
  • The parent / guardian should submit their proof of identity, proof of address, income proof and bank details.
  • The guardian and the minor must comply with all KYC regulations.
  • The DP will verify the documents and complete the KYC processes.

Points of Note:

  • In India there is no limitation on age for opening demat account. Demat account can be opened for a new born baby as soon as the baby gets Aadhaar, PAN card and other KYC specific documents.
  • You can buy shares for the minor if you are minor’s parents or legal guardian. The other option is to buy shares and gift it to the minor.
  • The minor will need a bank account, either as sole or joint holder with legal guardians, for opening the demat or trading accounts. This is because the proceedings from the sale of securities from the minor’s trading account will be debited only to the minor’s bank account.
  • The minor will need PAN and Aadhaar and these must be linked, as well as comply with all KYC regulations to open a demat account.
  • A minor’s demat and trading accounts will be continued when the minor becomes a major. Essentially new demat and trading accounts are opened for the now minor turned major and all securities and financial instruments are transferred to the new demat account. The existing accounts can be continued after signing a new agreement with the DP. Once the new agreement is signed, the minor can operate the account. The parents/guardians details are deleted / replaced.