How to open a Minor Demat Account for Children in India?

Last Updated: 16 Oct 2024

A minor demat account is an account opened by a parent, or a legal guardian, in the name of a person below 18 years of age. Below are some of the problems that a minor demat account can help resolve:.

Planning your child’s future expenses:

From medical expenses to pre-school fees, parents have a variety of preset expenses. They also need to prepare finances for their child’s higher education and their wedding. A minor Demat account helps them draw a clean line around the funds which are only meant for their children’s education, wedding funds, relocation for jobs, and other expenses.

Financial literacy for your kids:

Reports show that 24% of the total population are financial literate in India which is very low compared to the world. Having a Demat account in your child’s name explains them the basics of savings and investment from an early age thereby giving them a great understanding about planning their expenses and growing their wealth better when they grow up.

The Process of Online Minor Demat Account Opening

The following documents are required:

• Minor’s PAN card required: The Permanent Account Number of the minor is mandatory required with the application. Both the minor PAN and AADHAR card need to be and made and interlinked before registering for open a Demat account in the minor name.
• Other documents that are needed:Permanent address proof and identity proof need to be submitted alongside the PAN card. When registering a demat account in a minor’s name, two Know Your Customer( KYC) documents need to be submitted. The KYC for the minor collects basic information and that of guardian collects personal details, bank account details, and an annual salary range. Financial institutions seek this information as the guardian responsible for the child has the authority to open, handle, and close the Demat account.

Reason for opening the Demat Account –

The written reason for opening a demat account in the minor’s name must be stated during the application. Most institutions accept an email from the guardian as written proof as well.

Since the Demat account is registered in the name of a minor, there are certain restrictions. The important restrictions are given below:

• Only equity trading is permitted: The minor’s guardian cannot do intraday trading using the minor’s trading account. This is because the intraday trading market has greater levels of volatility. Further, financial derivatives like futures and options cannot be traded using a minor Demat account either. Only equities can be bought and sold using a minor’s Demat account
• Can’t open a trading account in the minor’s name: Brokerage firms usually combine trading and Demat accounts into one comprehensive account. The financial law of the land, however, prohibits trading accounts to be opened in the name of minors.
• No joint accounts in minor’s name:A minor cannot be the joint holder of a Demat account. This is because a Demat account for adults and a Demat account for minors have different registration processes. This is also due to the fact that different regulations apply to Demat accounts for minors and Demat accounts for adults.

Conclusion

Your child’s Demat account can be used to grow, and keep track of, funds for their future education needs and other expenses.

They will also grow up with a greater awareness of saving and investing money. This financial literacy can be your child’s big competitive edge when he or she grows up. In India, close to 76% of people surveyed for a study showed a poor grasp of the basics of finance. In contrast to this, a child who grows up with an online Demat account has great financial literacy, very early on in life.

Frequently Asked Questions

Who Can Open a Minor Demat Account in India?

A parent, or a legal guardian, in the name of a person below 18 years old, can open a minor Demat account in India.

What are the limitations of a Minor Demat Account?

The minor’s guardian cannot do intraday trading using the minor’s trading account. They can only use the account to sell equity received as a gift or transfer from family members.

What happens to the Demat account when a minor turns major?

When the minor turns major, the Demat account ceases to be operational. The major can open a new Demat account and transfer all the shares to the new one.

What are the benefits of a Minor Demat Account?

A minor Demat account allows parents or a legal guardian to transfer or gift equities the minor can use after turning major for education, marriage etc. It lets parents and guardians save systematically for their children.