Introduction
As the Indian economy continues its rapid growth, the capital markets are becoming increasingly attractive to both domestic and foreign investors. This surge in interest is not confined to adults alone; even minors are now looking to participate in the market to benefit from its expansion. But how can a minor open a Demat account, and what is the minimum age requirement? This article aims to answer these questions and provide essential information for opening a Demat account for minors.
Who Can Open a Minor Demat Account?
In India, a Demat account is essential for investors to hold shares electronically. These accounts are managed by two primary entities, Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). The actual buying and selling of shares are facilitated by Depository Participants (DPs), such as stockbrokers.
Typically, any Indian citizen over the age of 18 can open a Demat account. However, minors can also have a Demat account, even though they are not legally allowed to execute financial agreements under the Indian Contracts Act of 1872. According to the Companies Act of 2013, any Indian citizen, regardless of age, can hold shares in publicly listed companies. This regulatory framework enables the establishment of Demat accounts for minors in India, with guardians providing oversight.
While the Demat account is technically owned by the minor, the account cannot be actively used by them to trade. Instead, a parent or legal guardian acts as the primary account holder and is responsible for managing the account. This includes transferring shares into the minor’s account as gifts. The process of opening, closing, and managing a minor’s Demat account remains under the parent or guardian’s control until the child turns 18.
How can you open a minor Demat account online?
There is no minimum age requirement for opening a Demat account for minors, but a series of steps must be followed. To begin the process of opening a minor Demat account online, go to the website of a stockbroker linked with either CDSL or NSDL. The initial step involves providing basic information such as the name, email ID, and contact number. Following this, you will be required to submit Know Your Customer (KYC) details for both the minor and the parent or guardian.
To set up a minor Demat account, you’ll need to provide the PAN and Aadhar cards for both the parent or guardian and the minor, the minor’s birth certificate, and the banking information of the parent or guardian. After submitting and verifying these documents with the stockbroker, the minor’s Demat account will be established. Remember, this account cannot be a joint account and will be overseen by the parent or guardian until the minor reaches the age of 18.
Limitations of a Minor Demat Account
While opening a Demat account for minors is possible, it does come with certain limitations. Firstly, a minor cannot operate the account independently. The documents of a parent or guardian are necessary for account opening and operation. Minors are limited to equity delivery trading only and are prohibited from participating in intraday trading or trading in equity and currency derivatives. Furthermore, a minor’s Demat account cannot be connected to an online trading platform.
What Changes Occur in a Demat Account When a Minor Becomes an Adult?
When a minor turns 18, the Demat account for minors becomes inactive. At this point, the account holder must complete a new Demat account opening form and submit the necessary documents. Unlike the minor account, the guardian’s or parent’s signature is no longer required. All current shares will be transferred to the new Demat account, allowing the account holder to engage in trading or investing across various market segments, subject to stockbroker approval.
Benefits of a Minor Demat Account
Opening a minor Demat account has several advantages beyond the simple online process:
- Better Financial Planning: Equity stocks and mutual funds generally offer better returns compared to other investment instruments. A minor Demat account allows parents or guardians to plan their children’s finances effectively, making it easier to save for future expenses like education, weddings, or job relocation.
- Promotes Financial Literacy: Introducing minors to the world of finance through a share Demat account can instill a sense of financial independence early on. As they become more engaged with the stock market, they develop crucial life skills that will help them navigate the complexities of the financial world.
Conclusion
Now that you’re familiar with the process of opening a Demat account for minors and the associated benefits, it’s time to put this knowledge into action. Opening a minor Demat account can help set the stage for your child’s financial future. Explore your options and choose the best trading app in India for beginners to get started today.
