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Demat Account for Minors - How to Open a Minor Demat Account in 2022?

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?

  • » Can minors open a trading account?

  • » What are the limitations of opening a minor Demat account?

  • » How to open a minor Demat account online?

  • » FAQs on Demat account for minors

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

  • » What are the benefits of a minor Demat account?

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

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

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.

Demat Account for Minors

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?

  1. A minor cannot be the joint holder of a Demat account. So, a minor cannot open a Demat account with parents or legal guardian as the joint holder. The parents or legal guardian can open and operate a minor Demat account but the minor stays the sole owner.
  2. You cannot use a minor Demat account for intraday trading. Even trading in the futures and options segment is banned for minors. A minor Demat account can be used to trade in equity deliveries only. Even trading in the currency and commodities market is not allowed for minors.

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

  1. You need minors (permanent account number) PAN card to open a Demat account. Also you should ensure that the minor’s PAN and Aadhaar are linked before opening a Demat account.
  2. The guardians also have to submit their pancard while opening a minor Demat account.
  3. Both the minor and the guardian have to complete the Know Your Customer (KYC) requirements.
  4. Birth certificate of the minor
  5. Bank account details of the minor where the guardian is a joint account holder.

How to open a minor Demat account online?

  1. Visit https://www.samco.in/register
  2. Fill in KYC details like PAN, address, bank account number of the minor. You also need to fill income and occupation details, address, email ID and mobile number of the guardian.
  3. Upload necessary documents like minor’s pancard, birth certificate, bank proof etc.
  4. With Samco Securities, you can digitally sign your account opening form by generating OTP on your Aadhaar linked mobile number.
  5. And that’s it! Your minor Demat account will be opened within 24 hours.

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.

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Frequently Asked Questions on Demat account for minors

Q
What is a Demat account?
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A
A Demat account is like a bank account for your financial assets. It stores your assets like stocks, mutual funds, and bonds etc. in digital form. A Demat account is mandatory for investing in the stock market.
Q
What is a trading account?
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A
A trading account is linked to a Demat account and is used to buy and sell shares in the stock market. Click here to know the difference between Demat and trading account.
Q
Can a minor open a Demat account?
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A
Yes, a minor can open a Demat account with the parents acting as caretakers of the Demat account. All the buying and selling will be done by the guardian on behalf of the minor.
Q
What documents are required to open a Demat account for minor?
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A
The documents required to open a minor Demat account are:
  • Pancard of the minor and the guardian.
  • Address proof like Aadhaar card, electricity bills etc.
  • Birth certificate of the minor
  • Bank account details where the minor is a joint account holder.
  • Two KYC forms – one for the minor and the other containing KYC information of the guardian.
Q
Can a minor open a trading account?
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A
A minor can open a trading account but cannot use it to buy and sell shares themselves. The guardians are allowed to buy and sell shares on behalf of the minors. But remember, you can only sell shares which were either allotted in IPO, or were gifted to the minor by family members.
Q
Can a minor open a joint Demat account?
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A
No, a minor cannot be a joint holder of any Demat account.
Q
Can you trade in the futures & options segment with a minor Demat account?
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A
No, you can only trade in the equity delivery segment with a minor Demat account. You cannot trade in the currency, commodity derivatives (F&O) with a minor Demat account.