Minor Demat Account – Meaning, Process & Benefits

The number of investors in India is continuously increasing. With the rise of online trading, more retail investors have emerged in India over the years. People are applying for trading accounts, minor demat accounts, and other brokerage services. Many of us might not know about the demat account facilities for minors in India. A minor can learn the basics of trading at a young age with a demat account. Imparting financial knowledge to children at a young age can do wonders. Read on to understand what a minor demat account is and how to apply for one in India.

What Is A Minor Demat Account?

A minor demat account is an investment account opened in the name of a minor by a guardian or parent. It serves as a platform for minors to invest in securities such as stocks, mutual funds, bonds, and other financial instruments. The guardian manages the account on behalf of the minor until they reach the legal age of majority, typically 18 years old.

While the minor owns the securities in the account, they do not have control over trading decisions until they reach the age of majority. This arrangement allows minors to start building a portfolio and gain exposure to financial markets from an early age. Additionally, it provides an avenue for parents or guardians to save and invest on behalf of their children for future financial goals such as education or other expenses.

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How to Open Minor Demat Account

• Fill Out Application

  Locate the minor account using the demat application form and fill in the required details. You’ll likely need to provide personal information such as the minor’s name, age, email address, and contact details for both the minor and the parent or guardian.

• Verify Contact Details

  Confirm your contact details by entering the One Time Password (OTP) sent to your mobile number.

• Complete KYC Verification

  Upload the necessary KYC documents for the minor demat account. Ensure that you upload only original documents, as specified by Religare Broking.

• Submit Application

  After filling in all the required details and uploading the KYC documents, submit the demat account application.

• Wait for Approval

  Await the response from the broker regarding the approval of the minor demat account application.

• Receive Account Credentials

  Upon approval, Religare Broking will provide the credentials to access the minor demat account. These credentials will allow the parent or legal guardian to manage the account on behalf of the minor.

Eligibility Criteria of Minor Demat Account

Anyone above 18 years of age can apply for a demat account in India. Investors can leverage the services offered by stockbrokers and Depository Participants (DPs) to open demat accounts in India. Once you have a 2-IN-1 demat and trading account, you are allowed to buy/sell shares and other securities. Minors in India are not allowed to buy or sell shares, as per the Indian Contracts Act (1872). However, the 2013 Companies Act allows any Indian citizen to hold shares in public companies, irrespective of their age.

Due to the 2013 Companies Act, minors are allowed to hold shares in their name. However, they must apply for a minor account with demat to do so. Many minors receive public shares as an inheritance. Some parents transfer shares to their children as a gift. Any Indian citizen below 18 years of age can apply for a minor demat account. However, the parent or legal guardian has complete authority over the demat account till the minor becomes an adult.

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Documents Required For Minor Demat Account

Now that you understand the eligibility for a minor dematerialisation account, let us discuss the documents required. When someone above 18 years of age applies for a new demat account, they go through the KYC (Know Your Customer) process. However, Demat account providers have to verify the identity of the individual and their parent/legal guardian for a minor dematerialisation account. It is why there is dual KYC for minor dematerialisation accounts in India. Certain KYC documents must be submitted by the minor and the parent or legal guardian. The Demat account request is canceled in the absence of KYC documents.

You can upload the KYC documents on the digital portal when applying for a minor demat account online. Here are the documents required for a minor dematerialisation account in India:

• PAN card of the parent or legal guardian

• Aadhar card of the minor

• Aadhar card of the parent or legal guardian

• Birth certificate of the minor

• Bank account details/statements of the minor (if any)

Minors are not required to produce income proof to open a minor dematerialisation account. Some brokers or DPs might ask for additional documents to open a new demat account.

Rules Of Minor Demat Account

There are certain rules associated with minor dematerialisation accounts in India. For instance, a minor cannot buy or sell shares via a demat account. However, parents and legal guardians can transfer shares to a minor dematerialisation account as a gift. Also, the management of a minor dematerialisation account is in the hand of the parent or legal guardian. It continues till the minor becomes 18 years of age. The registered parent or legal guardian makes all major demat account decisions. For the same rationale, it is said that the parent or legal guardian opens a demat account on behalf of a minor.

Once a minor becomes a major, a request for full ownership is submitted to the DP or broker. Upon the approval of the demat account provider, the individual gets full ownership of the demat account. Also, the minor demat account is closed, and a regular demat account is opened. Even though there are investment restrictions, minors are allowed to hold different securities. Besides public shares, minors can hold bonds, mutual funds, and other securities in their demat accounts. The broker or DP will inform you about the applicable rules while applying for a minor account with demat.

Benefits Of Minor Demat Account

Similar to regular demat accounts, minor accounts also have their benefits. Here are the benefits of minor demat accounts in India:

• Easy Transfer of Shares

  Parents might want to transfer some securities in the name of their children. They can do so by opening a minor dematerialisation account for their children. You are allowed to transfer securities to a minor dematerialisation account as a gift.

• Financial Knowledge

  Parents can impart financial education to children at a very young age. When children have minor dematerialisation accounts, they get to learn the basics of trading at a young age.

• Starting Early

  Minor dematerialisation accounts allow individuals to start their investment journey early. They might have a diverse or stable portfolio when they turn 18 years of age.

• Savings

  Many parents want to save for their children’s future. They can do so by making long-term investments on behalf of their children. The securities transferred to a minor dematerialisation account can be used for the child’s education, marriage, or any other purpose.

• Capital Appreciation

  Since the minor might hold securities for the long term, there are chances of capital appreciation. The account holder might get multifold returns after becoming an adult. Choosing the best demat account can significantly enhance your investment strategy and financial growth.

What Are The Limitations Applicable To A Minor Demat Account?

There are certain limitations applied to minor account with demat in India. For instance, a minor cannot manage their demat account before turning 18 years of age. The Demat account of a minor must be managed by the parent or legal guardian. For the same rationale, the broker or DP collects the legal guardian’s or parent’s details during the account opening process. The parent makes all major decisions regarding the minor dematerialisation account.

There are investment restrictions on a minor dematerialisation account. Minors cannot buy or sell shares, bonds, or mutual funds by themselves. However, they can receive securities in their demat accounts as gifts. Only equity delivery traders are allowed for minors. They cannot indulge in intraday or derivative trading with a minor dematerialisation account. Since an online trading account cannot be linked with a minor dematerialisation account, one cannot execute trades.

What Happens To The Demat Account When A Minor Turns 18?

When a minor turns 18, their demat account is no longer operational. It means the minor demat account is no longer active, and the services are stopped. The account holder must apply for a new demat account with the broker or DP and transfer the securities to the new account. In short, the account holder must apply for a regular demat account after turning major. When you apply for a regular demat account, documents of the parent are not required.

You might be worried about the shares held within a minor dematerialisation account. The broker or DP will rightfully transfer the shares to the new demat account. A minor can make trading decisions after turning 18. The Demat account service provider will take care of the further process.