loader2
Partner With Us NRI

Open Free Trading Account Online with ICICIDIRECT

Incur '0' Brokerage upto ₹500

How To Open A Trading Account For Minors In India?

11 Mins 03 Jan 2024 0 COMMENT

Growing financial literacy in India has led to investors of all age groups showing interest in the markets. Quite recently, the prospect of opening a trading account for minors has also gained traction in India, allowing youngsters to venture into the world of investing early on.

Gifting shares as birthday presents has been gaining popularity in India, parents can open a trading account for children under the age of 18 easily.

Here's a comprehensive guide on how to open a trading account for minors in India, that outlines the process, eligibility criteria, benefits, limitations, and contingencies.

Who Can Open Trading Account For Minors?

A demat account is necessary for Indian investors to electronically store their shares. These accounts are managed by two main entities: Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). The buying and selling of shares are facilitated by Depository Participants (DPs). Any Indian citizen aged 18 or above can initiate a demat account. Joint investors, corporate firms, and Non-Resident Indians (NRIs) are also eligible to open Demat accounts.

The Indian Contracts Act of 1872 prohibits minors from engaging in financial agreements. However, as per the Companies Act of 2013, any Indian citizen, regardless of age, can own shares in publicly listed companies. Hence, a minor can legally have a demat account.

Yet, the minor cannot actively trade using this account. Instead, the account must be operated by a guardian on behalf of the minor. The guardian can be a parent, a court-appointed legal guardian, or any other adult authorized by the court. The guardian is responsible for managing the account until the minor reaches the age of 18.

The Process of Opening a Trading Account for Minors Online

Selecting a Depository Participant (DP)

Choose a registered DP, such as a bank or financial institution, offering demat account services for minors.

Documentation

The minor's Permanent Account Number (PAN) is a mandatory requirement for the application. Both the PAN and AADHAR cards of the minor should be generated and linked before initiating the opening of a demat & trading account in the minor's name.

Submission of permanent address proof and identity proof alongside the PAN card is necessary. When establishing a Demat & trading account in the minor's name, two sets of Know Your Customer (KYC) documents are essential. The KYC documentation for the minor includes basic information, while that of the guardian collects personal particulars, bank account information, and an annual income bracket. Financial institutions request this information as the guardian holds the responsibility and authority to initiate, manage, and terminate the demat account on behalf of the minor.

Application Form

Fill out the account opening form provided by the DP. The guardian's details must be accurately provided, as they will manage the account until the minor comes of age.

Submission and Verification

Submit the duly filled form along with the required documents to the chosen DP. The documents will be verified, and in some cases, the guardian may need to be present for in-person verification.

Benefits Of Minor Demat Account

Financial Education

Opening a minor trading account can serve as an excellent educational tool, introducing the minor to the concepts of investment, savings, and financial planning from an early age. This will prepare them to cultivate essential life skills crucial for understanding investment management.

Wealth Creation

By investing in the stock market, minors can potentially build a substantial corpus over time, benefiting from compounding returns.

Guardian’s Oversight

The guardian oversees and manages the account until the minor reaches adulthood, ensuring responsible investment decisions.  It enables parents/guardians to effectively strategize and manage their children's financial future. This account can be utilized for saving towards various milestones such as higher education, weddings, job-related relocations, and more.

Limitations Of Minor Demat Account

Guardian's Control

The guardian retains control over the account until the minor turns 18, which might limit the minor's autonomy in investment decisions.

Legal Responsibilities

The guardian is legally responsible for all transactions and decisions made in the minor's account.

What Happens If A Guardian Dies

In the unfortunate event of the guardian's demise, specific steps need to be followed:

Appointment Of A New Guardian

The court may appoint a new guardian for the minor's account. An application for a change of guardian needs to be submitted to the DP. This application should have the old guardian's death certificate along with the usual list of documents needed.

Account Freezing

Until the new guardian is appointed, the account may be temporarily frozen to prevent unauthorized access or transactions.

Conclusion

Opening a minor demat account in India presents a gateway for young individuals to learn about financial markets and start investing early. It provides a platform for financial education and wealth creation under the guidance of a responsible guardian. While it has its benefits and limitations, this avenue sets the stage for minors to develop a healthy understanding of financial planning, laying a robust foundation for future investments.

FAQs:

Who Can Open A Minor Trading Account In India?

As per the Companies Act of 2013, although minors are restricted from engaging in financial agreements, they are allowed to own shares in publicly listed companies. Therefore, a minor can legally possess a demat account, operated and managed by a guardian.

What Are The Limitations Of A Minor Trading Account?

Until the minor turns 18, the guardian maintains control over the account, potentially limiting the minor's independence in investment decisions. The guardian assumes legal responsibility for all transactions and decisions made within the minor's account.

What Happens To The Trading Account When A Minor Turns Major?

Upon reaching the age of 18, when the minor becomes a major, the ownership and control of the demat account automatically transfer to the individual.

What Are The Benefits Of A Minor Trading Account?

Financial Education: Opening a minor trading account serves as an educational tool, introducing the minor to investment concepts and financial planning.

Wealth Creation: Through investing in the stock market, minors can potentially accumulate wealth over time.

Guardian&rsquo's Oversight: The guardian's supervision ensures responsible investment decisions, aiding in effective financial planning.

 

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.