The introduction of the demat account in 1996 revolutionized the scenario of trading and investing in India forever. Before that, shares existed only in a physical form which also made it difficult for most traders and investors to transact freely without any worries. There was always the risk of theft, loss or misuse when shares were bought or sold in their physical form. However, dematerialization of shares eliminated all these risks and hassles by providing a one-stop solution for holding and trading securities seamlessly in a digital form.
Simply put, a demat account is an account where one can hold securities and through which one can buy, sell and even transfer the same digitally. It is not only safer and more secure than physical shares but also simpler and less time-consuming to use a demat account for all the above-mentioned transactions.
It is widely thought that only an individual aged 18 and above is qualified to open a demat account. However, as a matter of fact, a demat account can most surely be opened in the name of a minor. As per the Indian Contract Act of 1872, a minor cannot be a party to a contract or agreement. However, any person of any age is allowed to hold shares of a company, as per the Companies Act of 2013. Therefore, going by this allowance, a minor’s demat account can be opened.
However, it should be noted that while a minor can hold shares given as a gift by his or her parent or guardian, a minor is still not allowed to actually buy or sell the shares independently. These transactions can only be undertaken, on his or her behalf, by a parent or guardian. It should also be remembered that the guardian or parent has the complete authority for activating, managing, deactivating or closing the said minor’s demat account. This continues until the minor is 18 years of age, from when he or she is legally eligible to buy and sell shares.
As in any demat account opening procedure, an account opening form needs to be filled and details such as Proof of Identity and Proof of Address need to be submitted with the depository participant as well. Let’s dive deep and look at each of these requirements closely.
1. Account Opening Form: This form will contain details of not only the minor holding the account but also his or her guardian or parent. In fact, in the case of a minor’s demat account, there will be two separate KYC forms, one for the guardian and the other for the minor. The guardian will also be responsible for all the signatures notifying approval and consent in the said account opening form.
2. Proof of Identity: Both the minor and the guardian need to provide their Proof of Identity. PAN Card is a compulsory document for both but other Proof of Identity documents also need to be submitted, such as Aadhaar Card, Passport and, in the case of the guardian, a Driver’s License or Voting Card as well.
3. Proof of Address: The documents applicable to furnish a Proof of Address include Aadhaar Card, Ration Card, Registered Lease or Sale Agreement, utility bills and so on.
4. Birth Certificate: The birth certificate of the minor demat account holder needs to be submitted as well.
5. Bank Account Details: The guardian needs to share his or her bank account details only.
6. In case the guardian is a legally appointed guardian, the court order certifying the person to be guardian to a minor also needs to be submitted for demat account opening.
Now that you know what all is required for opening a minor’s demat account, it is hoped that you won’t face any confusion.
1. A minor doesn’t have any tax implications from the earnings, if any, made through a demat account. His or her income is added to his or her parent or guardian’s income.
2. A minor’s demat account allows trading in Equity Delivery segment. A minor, through his or her guardian’s demat account, can also apply for an IPO or a buyback offer.
3. In the undesirable case of a parent or guardian’s death, a minor’s demat account would be frozen and all transactions would be restricted until a new legally appointed guardian submits a fresh KYC form duly filled by him or her. All KYC documents such as identity proof, address proof, bank account details, and others have to be submitted alongside the original death certificate of the deceased guardian. The copy of the court order, notifying the appointment of the legal guardian, should also be submitted.
A minor’s demat account can be opened by a parent or guardian as a means of financial planning for the minor’s future, and certain important goals such as education and employment. Moreover, by holding a demat account, although severely limited in terms of trading applications, can give a minor an early formative education of how markets and investments work, and this can help a minor navigate markets confidently when he or she comes of age.
When a minor turns 18 years old, he or she becomes an adult. The existing minor’s demat account can then be closed and a fresh account opening form, for a regular demat account, has to be filled with and submitted with all the necessary details.
The guardian’s signature and information will be effectively deleted from the individual’s records and the individual’s new details and signature will be collected on all forms and records.
It is hoped that you find all this information useful in case there is a need in future to open a minor’s demat account.
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