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What is Minor Demat Account

11 Mins 07 Jun 2023 0 COMMENT


Indian and foreign investors are investing a growing amount of money into the capital markets as the Indian economy is growing more quickly than it did previously. Also, minors are getting attracted to the profits from the market's expansion just like adults are. So, what do we know about Demat Account for Minors in India? And can minor open a demat account? Are child demat accounts legal?

What is the minimum age to open a Demat account for Minors? To assist you in making a well-informed choice when starting a Minor Demat account, the following sections provide answers to inquiries like these.

Who can open a minor demat account in India?

Investors in India must have a Demat account in order to keep the shares they buy or sell online. The Central Depository Services Limited (CDSL) and National Securities Depository Limited manage demat accounts (NSDL). Depository Participants, or DPs, permit the buying and sale of shares. Any Indian citizen who is older than 18 can typically open a Demat account. Joint investors, business entities, and non-resident Indians are all allowed to open demat accounts.

Can a minor open a demat account?

The Indian Contracts Act of 1872 prohibits minors from signing or participating in financial agreements. Nonetheless, any Indian citizen, regardless of age, is permitted to own shares in publicly traded firms under the 2013 Companies Act. As a result, it is acceptable to open a minor Demat account in India. Although if a minor technically owns the Demat account, the minor is unable to buy or sell shares on their own. In order to transfer the shares to the minor's Demat account as a gift, they will need the parent(s) or guardian to act as the principal party. Therefore, only a kid's parent or legal guardian may open a demat for minors. Ideally, until the minor turns 18 years, the parent or legal guardian of the minor has absolute authority over all matters relating to the opening, closing, and management of a minor demat and trading account. A child demat account is surely a good financial practice.

How to open demat account for minors?

There is no minimum age restriction, but there are organized procedures you must follow in the process of minor demat account opening online through a demat account app

1. To initiate the online opening of a minor demat account, you must visit the website of a stockbroker endorsed by CDSL or NSDL. The broker will require some basic information from you, such as your name, email address, phone number, etc., to proceed.

2. You will need to provide the minor's and parent's KYC (Know Your Customer) information as well.

3. The PAN card, the Aadhar card, the minor's birth certificate, and the bank account information of the parent or guardian are among the minor demat account opening documents required that must be submitted in order to open a minor Demat account.

4. Once the stockbroker has received and approved all of your necessary papers, the small Demat account will be opened.

However, it's crucial to understand that a minor Demat account can never be created as a joint account.

Limitations of Minor Demat Account

Although there is no minimum age to open demat account and the requirements to open or use a Demat account for trading, a minor Demat account has several restrictions.

1. A minor cannot open a minor Demat account on their own. To open a minor Demat account, the stockbroker will require documentation from the parent or legal guardian.

2. A minor can only trade in equity delivery using the minor Demat account. Equity intraday trading as well as stock or currency derivatives are prohibited for minors.

3. An online trading account cannot be connected to a minor's Demat account. That means a minor cannot have a minor trading account.

When a Minor Becomes a Major, what Happens to the Demat Account?

When a minor reaches the age of 18, their Demat account is no longer active. As a result, the account holder must submit a brand-new Demat account opening application form together with the necessary paperwork. In contrast to a minor Demat account, no guardian or parent signature is required. The shares, if any, will be moved to the new account, after which the account user can trade or invest in all markets (with the stockbroker's consent).

Benefits of Minor Demat Account:

The benefits of a Minor Demat account include the following in addition to an easy online account opening process:

Improved financial planning - Mutual funds and equity stocks frequently offer higher returns than other investment instruments. Parents and guardians can better organize their children's finances by opening a minor Demat account. As a result, you can utilize this account to save money for your children's college expenses, a wedding, relocating for work, etc.

Promotes Financial Literacy - Children are introduced to the world of financial freedom with a minor Demat account. They gain essential life skills necessary to thrive in the world as they become more and more engrossed with the details of the stock market.

Thus, if you were looking at options to open a Demat account for a minor in India, do visit the website to open a minor Demat Account today.

FAQs on Minor Demat Account:

Who is eligible to be a guardian?

When opening a Demat account for a child, either one of the child's parents or a court-appointed guardian may serve as the guardian for the account.

Who is responsible for filling out the Demat account opening form?

To open a Demat account for a child, the guardian must complete and sign the necessary forms. This includes filling out and signing two KYC (Know Your Customer) forms, one for the child and one for the guardian.

What are the documents required while opening a Demat account for a minor?

As a part of the process, you will need to provide a few documents such as two KYC forms, PAN card, Aadhar card, minor's birth certificate, and bank account details of the parent or guardian.

Who should operate the account?

Only the legal guardian of the child is authorized to operate the account.

Can those under 18 do trading?

According to the Indian Contracts Act of 1872, minors are not allowed to sign or participate in financial agreements. However through the Companies Act of 2013, any Indian citizen, regardless of age, is permitted to own shares in publicly traded firms. However, a minor can only trade in equity delivery using the minor Demat account. Equity intraday trading as well as stock or currency derivatives are prohibited for minors.

Is a minor Demat account taxable?

In case a minor's income is clubbed with a parent's income, there is a tax exemption on the total income per child. This exemption is only applicable for up to two children in a financial year. Additionally, parents can claim a tax deduction under section 10(32) of the Income Tax Act of ₹1500 per child. However, this deduction can only be claimed by the higher-earning parent and is available only under the old tax regime.