Minor demat account

A Demat account ensures a simple, seamless, paperless, and genuine trading and investing. However, to maintain the genuineness of the process, you need to provide certain documents for opening a demat account.


Minor Demat Account

Prior to 1996 in India, shares were bought, stored and sold as share certificates. With the setting up of National Securities Depository Limited in India, share trading became online, and shares were now traded in an electronic or dematerialized1 format. A demat account allows investors to buy, store and sell shares in their dematerialized format. Just like a bank account is for your money, demat account is for your stocks and other equity-related investments.

As per the Securities and Exchange Board of India, opening a Demat account is necessary if you want to trade in shares. The demat account makes investing in shares a safe, streamlined, cost-effective and time-saving experience. As the share certificates get converted to electronic format, it increases their accessibility and ease of handling.

A Demat account can be opened by different types of investors, like an individual investor, joint investors, corporate and NRIs. It can also be opened in the name of a minor. Let us have a look at the procedure to be followed and the documents to be provided for opening a Minor's demat account.

The Indian Contracts Act,1872 lays down that minors cannot be a party to any contract or agreement. But, the Companies Act, 2013 allows any person of any age to hold shares of a company. Therefore, a minor demat account can be opened in the name of the minor but he or she cannot actively buy or sell shares themselves. The shares have to be transferred to the minor as gifts by a guardian. Hence,only the parents or a legal guardian can open a demat account in the name of the minor child. The natural or legal guardian has complete authority regarding opening, managing and closing the demat account of the minor until the child attains 18 years of age. Following are some of the documents that have to be provided to open the demat account of the minor.

1)Account Opening Form: A duly filled demat account opening form with all the relevant details of both the minor and the guardian. Two separate KYC forms, one for the guardian and the other for the minor, have to be provided with the account opening form. All the signatures on the account opening and KYC forms have to be made by the guardian.

2)Proof of Identity–POI:

a)PAN Card of the guardian and the minor is to be compulsorily provided.

b)Any other applicable PoI document like Aadhar Card, Passport, Voting Card, Driving License has to be submitted for both guardian and the minor.

3)Proof of Address–POA:Applicable PoA documents from among Aadhar Card, Ration Card, Registered Lease or Sale agreement of residence, Utility bills, etc. have to be provided.

4)Birth Certificate of the minor has to be provided.

5) Bank account details of the guardian, where the minor is a joint holder, is required. A separate bank account of the minor is not necessary.

6) In case of a legal guardian, the respective court order appointing the person as the guardian of the minor.

Once, all the documents are submitted to the depository participant (broker), he opens the account in the name of the minor. It is important to remember that the minor demat account neither is nor can be, opened as a joint account.

The minor does not have any tax implications from the earnings made through the demat account. The minor's income is added to either parent's income (whoever's income is more) or the guardian's income.

A parent can be the guardian to the demat accounts of all of his or her children.

A minor demat account allows trading in Equity deliveries. A minor, through his guardian and demat account, can also apply to IPO and buyback offers.

If the guardian of a minor's demat account dies, the account is labeled frozen, and all transactions are stopped till a new guardian submits a duly completed fresh KYC form. All the KYC documents including Identity proof, address proof, bank account details, etc. have to be provided along with the original death certificate of the deceased guardian. The copy of the court order, in case a legal guardian is appointed, should also be submitted

The primary restriction on the minor demat account is that it allows trade only in shares. The guardian can trade only in delivery shares through this account. Trading in equity intraday, equity derivatives, currency derivatives, etc. is not allowed for a minor demat account.

The minor joint account cannot be converted into a joint account. The minor cannot be a part of any joint demat accounts.

Once, the minor turns major, the existing account becomes inoperative and has to be closed. A fresh account opening form along with a KYC has to be submitted to open a new account for the person. All the relevant documents including Identity Proof, Address Proof, bank account details (bank account in the person's name is mandatory now) have to be freshly submitted.

The guardian's details and their signature will be deleted, and the applicant's signature will be obtained on all forms.

All the existing shares will be transferred to the new demat account. As the applicant is major now, he is subject to appropriate tax implications.

A minor demat account can be extremely beneficial for planning the finances of a child from a very early age. This account can be used to invest in equity to ensure some finances for the future of the child.

The child receives a basic education in equity investment which can be helpful in the future. They also understand the importance of saving money, investing in correct instruments and financial planning, thus securing their future.