A minor in India is an individual whose age is below 18 years. A Demat Account in the name of a minor can be easily opened by the minor’s parents or a legal guardian. There are many benefits associated with opening a Demat Account in the name of a minor, and these benefits are not only for the minor but also for the parents or the guardian. In a Demat Account of a minor, the transfer formalities take less time as compared to a regular Demat Account. Usually, parents get a Demat Account opened in the name of their child or children and use this account for investing in Exchange Traded Funds (ETFs), stocks, mutual funds, etc. on a long-term basis to safeguard the future of their child or children (both for financial and educational purposes).
However, opening a Demat account in the name of a minor might be easy, but there are certain rules for using a Demat Account (minor) for trading or investments.
Following are the rules for Minor’s DEMAT Account:-
1) No Joint Owner: – A minor cannot be a joint owner in any Demat Accounts. A minor can only be a part of a Demat Account in the minor’s own name, which is only sole ownership, operated by the parents or guardian.
2) KYC Requirement: – The Demat Account opening form will remain the same in the case of Minor’s Demat Accounts. For verification purposes, Know Your Customer (KYC) forms are to be filled – one of the parents and one of the minors (to be filled in by the parent).
3) Minor’s Demat Account: – A minor himself/herself cannot open a Demat Account. Though their parents can Open a Demat Account in the name of their child or children. Parents can also use the Demat Account (minor) until their child reaches 18. When the child reaches 18 years of age, the Minor’s Demat Account will be seized and a regular DEMAT Account will be opened and all the securities in the Demat Account (minor) will be transferred to the new DEMAT Account. An Old Demat Account can only be continued after signing a new agreement between a minor and a Depository Participant.
4) Trading Account Rule:- Due to the restrictions put on the Minor’s Demat and trading account acquisition, they are not allowed to do trading in equity through the stockbroking app. Shares held in a Demat Account (Minor) are gifts from family members. No trading account can be linked to a minor’s Demat Account & a minor cannot use a trading account to take part in intraday trading, buy/sell shares, etc. Only the minor’s parents or legal guardians can use the minor’s trading account for investment purposes.
Also Read: How to Choose the Best Demat Account
A Minor’s Demat Account can be beneficial not only to the child but also to the minor’s parents or guardians. But, apart from benefits, there are certain Demat Account (Minor) rules that need to be followed to ensure no fraud practices through a minor’s Demat Account and also to ensure that the account is not misused in any possible way. Minor’s Demat Account can be used to grow, and keep track of funds for their education needs and other expenses. A child who grows up with a Demat Account of his/her own becomes familiar with the stock market trading and investment procedure from an early age. This will also clear up the basics of finance, which is very important in today’s stock market world.