What is a Minor Demat Account?

Introduction

With the Indian economy experiencing rapid expansion, both Indian and foreign investors are increasingly channeling their funds into the capital markets. This trend isn't limited to adults alone, even children are also getting involved, hoping to make big profits from the market's impressive growth. So, how can a minor open a Demat account and what is the minimum age to open one? The following article answers questions like these to help you make an informed decision while opening a minor Demat account.

Who Can Open a Minor Demat Account?

A Demat account is mandatory for investors in India to store the shares they buy or sell electronically. Demat accounts are maintained by two primary entities, namely the Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL). The purchase and sale of shares are facilitated by Depository Participants (DPs), such as 5paisa. Generally, any Indian citizen above the age of 18 can open a Demat account. Additionally, Demat accounts can be opened by joint investors, corporate firms, and Non-Resident Indians (NRIs).

According to the Indian Contracts Act of 1872, minors are not legally allowed to execute or be party to financial agreements. However, in accordance with the Companies Act of 2013, any Indian citizen, regardless of their age, is permitted to hold shares in publicly listed companies. Therefore, you can legally open a minor Demat account in India. 

A minor Demat account, though technically owned by the minor, cannot be actively used by the minor to buy or sell shares. Instead, a parent or legal guardian is required to act as the primary party responsible for transferring shares to the minor's Demat account as a gift. Consequently, the process of opening, closing, and managing a minor's Demat account falls under the purview of the minor's parent or legal guardian until the child reaches the age of 18.
 

What is The Process of Online Minor Demat Account Opening?

While there is no minimum age requirement for opening a minor Demat account, you must follow a series of well-organized steps. To open a minor Demat account online, you need to visit the website of a stockbroker affiliated with either CDSL or NSDL. The broker will initially request basic information such as the name, email ID, and telephone numbers before proceeding to the next step. In the subsequent step, you are required to provide the KYC (Know Your Customer) details for both the minor and the parent or guardian

The documents required to open a minor Demat account include the following:

1. Proof of Identity (PAN card) for both the parent/guardian and the minor.
2. Proof of Address (Aadhar card) for both the parent/guardian and the minor.
3. The birth certificate of the minor.
4. Bank account details of the parent/guardian.

Once you have gathered all the necessary documents, you can submit them to the stockbroker. If the stockbroker finds the documents satisfactory and in order, they will proceed to open the minor Demat account.

It's important to note that a minor Demat account cannot be opened as a joint account.
 

Limitations of a Minor Demat Account?

To open a minor Demat account, there are several limitations. Firstly, a minor cannot operate a Demat account independently. The stockbroker will require the documents of a parent or guardian to open a minor Demat account. Secondly, a minor's Demat account can only be used for trading in equity delivery minors are not allowed to engage in equity intraday trading or trade in equity or currency derivatives. Thirdly, a minor's Demat account cannot be linked to an online trading account.

What Happens to the Demat Account When a Minor Turns Major?

When a minor reaches the age of 18, their minor Demat account becomes inactive. Consequently, the account holder must complete a fresh Demat account opening application form and provide the required documents. Unlike a minor Demat account, there is no need for the guardian's or parent's signature. Any existing shares will be transferred to the new account, enabling the account holder to trade or invest in all segments, subject to approval from the stockbroker.

What are the Benefits of a Minor Demat Account?

Besides a smooth online account opening process, a minor Demat account offers the following advantages:

Better Financial Planning - Equity stocks and mutual funds often provide better returns than other investment instruments. A minor Demat account allows parents/ guardians to better plan their children's finances. Hence, you can use this account to save for your children's higher education, wedding, relocation for jobs, etc.

Promotes Financial Literacy - A minor Demat account introduces children to the world of financial independence. As they deeply involve themselves in the complexities of the stock market, they develop vital life skills necessary for navigating the world.

Conclusion

Now that you are aware of the minimum age to open a minor Demat account and the account opening process, it's time to apply this knowledge to shape a bright future for your children. Click here to conveniently open a free online minor Demat account.