Demat Account for Minors

Demat Account for Minors - How to Open a Minor Demat Account in 2024?

As a parent, you are always looking for ways to secure your child’s financial future. And the best way to do this is by opening a minor Demat account for your children. When you open a minor Demat account, you can invest in stocks, bonds, and mutual funds etc. on behalf of your minor child. This helps you segregate your investments or assets from your child’s assets. It also introduces your children to the concept of money, assets, and financial independence. The best part about opening a minor Demat account is that you do not dip into your child’s assets to finance your goals. So, how do you open a Demat account for minors? What are the limitations and benefits of a minor Demat account? These are some of the questions that we will answer in this article on Demat account for minors. Let’s begin by answering a basic question –

In this article we cover :

Who is a minor?

Any individual who is below the age of 18 years is considered to be a minor. A minor cannot open a Demat account on his own. Only parents or legal guardians of a minor can open and operate a Demat account for the minor.

Why can minors not open a Demat account on their own?

As per the Indian Contract Act 1872, a minor cannot execute or be a party to a financial agreement. But as per the Companies Act, 2013, any Indian citizen can hold shares of a publicly listed company, regardless of their age. So, while a minor can hold shares of a publicly listed company, he cannot enter into a financial agreement with a broker. The only way out is to open a Demat account for minor. This minor Demat account can be used to store shares and other financial assets that have been received as a gift from family members.

Can minors open a trading account?

Trading account can be opened in the name of the minor but there is a catch. This minor trading account can only be used to sell shares received in an IPO bid, inheritance, gift from relatives, and corporate actions etc. A minor trading account cannot be used for trades that do not result in deliveries. So, you cannot use a minor trading account in the futures & options (F&O) market.

What are the benefits of a minor Demat account?

The biggest benefit of opening a minor Demat account is that it encourages parents to plan for their child’s financial future from an early age. When you save and invest using a minor Demat account, you draw a clear line between your assets and your child’s assets. You do not use their assets to fund your financial goals. This keeps you and your child financially disciplined.

Check out how you can create wealth for your child here.

Another benefit of opening a minor Demat account is that it teaches children about the value of money. You can teach your children the concept of assets, liabilities, stocks, etc. This one good habit lays the foundation of all future financial decisions that your child makes.

[ Recommended Watch: Basics of Stock Market in Hindi ]

Another advantage of a minor Demat account is that the minor does not have to pay tax on the profit realised from the sale of shares. However, the income or profits will be added to the guardian’s total income and taxed as per the applicable tax slab.

What are the limitations of opening a minor Demat account?

What are the documents required to open a minor Demat account?

How to open a minor Demat account online?

What will happen to a minor Demat account when the minor turns 18?

As soon as the minor turns into an adult (completes 18 years), the minor Demat account will cease to be operational. You will have to submit a new Demat account opening form and redo the KYC formalities.

What Happens to a Minor’s Demat Account in the Case of the Guardian's Death?

The best demat accounts allow all eligible traders — including minors — to participate in the markets without any hiccups. However, what happens to the minor’s demat account in the case of the guardian’s demise?

Typically, in such situations, if the account holder is still a minor, they may have a new guardian. This new guardian can become the authority responsible for managing and operating the account. To make this change of guardianship possible, most stock brokers require a separate application to be submitted.

As a part of this application, the following documents may be needed:

• The original guardian’s death certificate
• The new guardian’s PAN
• The new guardian’s address proof

Depending on the broker you choose, the list of paperwork needed may also include other documents. That said, since a minor trading account is not permitted in India, this issue does not arise for a trading account.

Frequently Asked Questions on Demat account for minors