A demat account of a minor acts as an excellent tool for securing the future of our young generation. Here’s a comprehensive guide on how minor demat accounts work, how to open one, and the transition process once the minor reaches adulthood.

Can Minors Open a Demat Account?

Yes, in India, minors can open a demat account with the help of a guardian. As per the Indian Contract Act, 1872, children under the age of 18 cannot lawfully make contracts on their behalf; instead, a parent or legal guardian manages the account on behalf of the minor. However, the Companies Act, 2013 allows minors to have investments, but the guardian manages the account on behalf of the minor until the said minor turns 18 years of age.

Who Controls the Demat Account of a Minor?

Although the demat account is in the name of a minor, the guardian controls it. All decisions and dealings by the account are managed by the guardian until the account holder attains majority. Once the account holder reaches 18 years, they can manage all their investments.

How to Open a Minor's Demat Account?

Here is the step-by-step procedure for minor demat account opening:

Step 1: Select a Depository Participant (DP)

Identify a bank or a brokerage firm which provides demat services.

Step 2: Fill Up the Application

Fill up the demat account application with proper details of both minor and of the guardian.

Step 3: Submit Documents Required

Both the minor and guardian will submit a number of documents.

Minor's Documents: PAN card, birth certificate, and Aadhaar card.

Guardian's documents: PAN card, Aadhaar, address proof (utility bills or passport), and a bank statement or cancelled cheque.

Step 4: Verification

The Depository Participant verifies each and every document. Sometimes, it is an in-person check.

Step 5: Account Activation

When verification is complete, the demat account gets activated and the guardian gets the account details.

What happens to the Demat Account When a Minor Attains 18 Years of Age?

When the minor attains 18, an account needs to be transferred to a normal demat account. For this transfer process, the newly adult account owner would have to undertake the following procedures:

Step 1: Submit and fill up a fresh KYC form.

Step 2: Submit updated identity and address documents.

Step 3: Sign all required documents for gaining ownership control over the account.

Step 4: Subsequently, after these steps, an account holder can independently operate his demat account.

What are the Restrictions on the Account of a Minor?

• No Intraday or Derivative Trading: The minor will have delivery-based equity trades only—that means he cannot sell a stock today and buy it back tomorrow, nor can the minor deal with derivatives.

• The minor can't trade on the account independently; whatever the minor does relating to the account will require the guardian's approval.

• No Joint Accounts: One guardian can be linked with the account of a minor; joint holder accounts are not permitted.

What are the Benefits of a Demat Account of a Minor?

Demat account of a minor comes with a number of benefits, such as:

• Financial Literacy at an Early Age: Handling a demat account makes minor investors well aware of financial responsibilities and market principles.

• Long-term Investment Growth: It will provide more investment horizons that can prove to be significant growth over time.

• Potential Tax Advantages: The income generated from the account of the minor may be added to that of his guardian, which is going to provide tax advantages.

Conclusion

Opening a demat account in the name of minors is one way to secure and grow their financial future for them. It gives young investors exposure to the stock market guided by a trusted guardian. In understanding such a process, benefits, and restrictions of the minor demat account, parents and guardians can provide children with a valuable head start in financial literacy and security.

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