A demat account for minors is an investment account opened in the name of an individual below 18 years of age. According to the Securities and Exchange Board of India (SEBI), parents and legal guardians can open and operate a demat account in the name of minors.
Opening a minor demat account in India lets you invest in your child’s future by leveraging the financial markets for wealth creation. In this article, we are going to explore how to open a demat account for minors and why you should consider opening one for your child.
What is a Demat Account for Minors?
A minor demat account in India is opened in the name of a child below 18 years by a parent or a legal guardian. A demat account for minors can be used to hold financial securities like stocks, bonds and mutual funds in an electronic form, just like a regular demat account. However, unlike a standard demat account, this type comes with restrictions.
For instance, the minor cannot operate the account independently or engage in trading activities. Instead, the parent or legal guardian of the minor is the one responsible for managing the account and making investment decisions until the child turns 18.
Once the child turns 18, a minor demat account in India can be converted to a regular account by submitting an application and a few supporting documents to the respective depository participant (DP).
Why Open a Demat Account for Minors?
As a parent or a legal guardian, opening a demat account for minors is a step towards shaping your child’s future. Here are some compelling reasons why you should consider opening the best demat account for minors in India for your child.
1 Early Financial Literacy
Introducing your child to investing early on helps them understand money management better. The hands-on experience builds confidence, encourages responsible financial habits and prepares them to make smarter financial decisions as they grow.
2 Power of Compounding
A demat account for minors allows you to invest in long-term-focused assets like mutual funds or stocks. These investments benefit from compounding, where returns generate further returns, steadily building value over the years with minimal intervention.
3 Tax Planning Opportunities
As a parent or a legal guardian, you can use a minor demat account in India strategically. For example, you can invest in tax-efficient instruments like the Equity-Linked Savings Scheme (ELSS) to manage your overall tax liability and secure your child’s financial future.
4 Long-Term Wealth Building
Investing through a demat account for minors via a systematic investment plan (SIP) over a long period can accumulate into a significant corpus. By the time your child reaches adulthood, they can have a portfolio that supports higher education, entrepreneurial ventures or other life goals.
Who Can Open a Minor Demat Account?
A minor demat account in India can be opened in the name of a child under 18 years of age with valid identity proof such as a birth certificate or passport. The account opening individual must be the parent or a court-appointed legal guardian.
Now, according to the minor demat account rules laid out by the SEBI, joint accounts are expressly disallowed. This means a demat account for minors can have only one holder, the minor child. Neither you nor any other parent or guardian can be added as a secondary or joint account holder.
How to Open a Demat Account for a Minor in India
While the process of opening a demat account for minors is similar to that of a regular demat account, it includes a few additional steps and documentation. Here is a quick step-by-step guide on how to open a demat account for minors.
- Step 1: Choose a Depository Participant
Start by selecting a trusted depository participant (DP). Samco Securities is one of the few reliable depository participants that offer minor demat accounts. - Step 2: Fill Out the Account Opening Form
The next step is to complete an account opening form that includes details of both the minor and the parent or legal guardian. - Step 3: Submit KYC Documents
Once you have filled out the application, you must attach KYC documents for yourself and the minor. For the minor, submitting a valid identity proof is mandatory. As the parent or guardian, you must submit your PAN, Aadhaar, proof of address and bank statement. - Step 4: In-Person Verification (IPV)
The depository participant will conduct an in-person verification to confirm your identity and that of the minor. Depending on the depository participant you opt for, IPV can be completed digitally. - Step 5: Activation and Login
Once verification is complete, the account is activated. The user credentials are provided to you as the parent or legal guardian of the minor, which you can use to log into the trading account and conduct transactions.
Samco Securities offers a completely digital onboarding process, allowing you to open a demat account for minors within just a few minutes. Additionally, Samco’s trading platform is accessible anytime, anywhere, from your phone or computer.
Documents Required to Open a Demat Account for Minors
To open a demat account for minors, you need to submit specific documents that establish the identity of both the minor and the guardian.
Minor’s Documents
- Birth certificate (mandatory)
- PAN or Aadhaar (if available)
- Passport-size photograph
Parent or Guardian’s Documents
- PAN (mandatory)
- Proof of Identity: Aadhaar, driving license, voter’s ID, passport or latest utility bill
- Passport-size photograph
- Proof of guardianship (if not a parent)
Bank Proof
- Cancelled cheque, bank passbook, or a statement of the minor’s bank account (if available)
- Otherwise, a cancelled cheque, a bank passbook, or a statement of the parent's or legal guardian’s bank account.
Restrictions on a Minor’s Demat Account
To prevent misuse and to protect the interests of the account holder, the SEBI has enacted certain minor demat account rules that restrict some activities.
- A demat account for minors is meant solely for investment, not active trading. As a result, minor demat accounts cannot be used for trading in futures and options contracts.
- Trading using borrowed funds or leverage (margin trading) is prohibited for a demat account for minors due to the increased exposure to risk.
- A minor cannot operate the account or make transactions. Only the parent or guardian has access to the account. This restriction stays in place until the child turns 18 and the account is converted.
Tax Implications
The income generated from a demat account for minors is usually clubbed with the parents’ or legal guardians’ income. This essentially means that the tax on the income arising from a minor demat account in India must be paid by the parent or the guardian.
However, there is a special exemption. As per section 10(32) of the Income Tax Act, income of up to Rs. 1,500 per year from minor demat accounts is fully exempt from tax.
What Happens When the Minor Turns 18?
When the minor child turns 18, the demat account for minors must be converted into a regular demat account. The account conversion process involves submitting a fresh account opening form and completing a full KYC update in the now-adult’s name.
Once the depository participant completes the In-Person Verification (IPV) process, the control of the account shifts entirely from the parent or guardian to the child. The minor demat account is then closed, and all holdings are transferred to the new account, allowing the individual to manage investments independently from that point forward.
Benefits of Opening a Minor Account with Samco
Samco Securities’ tech-driven approach and investor-first philosophy make it the best demat account for minors in India. Here is a quick overview of some of the key benefits of opening a minor demat account with Samco.
1 Seamless digital onboarding
Samco’s fast, paperless account opening process saves time and effort, ensuring you get access to a demat account for minors from the comfort of your own home.
2 Competitive brokerage
With Samco, you benefit from low brokerage fees. This makes it a cost-effective option to invest regularly through a minor demat account in India.
3 Educational tools for young investors
Samco provides extensive learning resources like blogs, webinars and market insights. These tools help young investors develop financial awareness early.
4 User-friendly trading platforms
Samco’s platforms are intuitive and easy to navigate. They are designed to make managing investments and tracking performance efficient and effortless.
5 Strong customer support
Samco offers responsive support through multiple channels. Queries and grievances related to documentation, onboarding, account management and investments are answered quickly within minutes.
Conclusion
A demat account for minors not only helps you build long-term wealth and secure your child’s future but also encourages financial literacy from a young age. With Samco’s seamless onboarding, competitive pricing and educational support, you can make investing simple and rewarding. Open a minor demat account with Samco today and take the first step towards empowering your child’s financial journey.
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