How to open a trading account for minors?
A minor, that is a child below the age of 18, can invest in the stock market. The guardian of the minor operates the online trading account, Demat account, and bank account. Almost all brokers in India allow minors to open an online trading account.
Demat accounts for minors come with various benefits. The advantages are not only for minors but also for their guardians. Compared to regular Demat accounts, the transfer formalities for minors are less time-consuming. Demat accounts for minors provide an ideal platform for the child to know about financial planning at an early stage of life. Most of the population uses online trading accounts to invest in mutual funds, EFTs, stocks, and much more.
How to open a Demat account for a minor?
To open a Demat account for a minor, follow these steps.
First, the guardian needs to provide the required documentation, such as.
● Proof of address
● Proof of identity
● certificate for date of birth
● Photocopy for the proof of age
● Photographs to the depository participant
After collecting the documents, the DP verifies them and captures the PAN details of the minor in the DPM system post verification.
The Demat account for the minor gets created upon successful submission and verification of the submitted documents.
Limitations of a minor Demat account:
● A minor Demat account has certain restrictions compared to a regular Demat account.
● The person operating a minor online trading account must not trade in segments, like equity intraday, currency derivations, and equity derivative trading
● When the minor turns major, the exciting account becomes inoperative. The person should open a new separate account. The Demat holding will get transferred from the minor account to the major account
● A minor cannot get regarded as a joint holder in a Demat account. Only the minor’s name can hold the Demat account
● If you want the shares to be held jointly with the minor in paper form, they need to get transferred to the minor and then to the Demat account in the minor's name
● A minor’s online trading account can only buy or sell the delivery of shares
● You can open a 3-in-1 account (bank, trading, Demat account) in the name of a minor
● A minor’s Demat account does not link to a trading account
The procedure followed after the minor turns major:
Below, the system followed once a minor turns major
● The account holder should submit the newly updated KYC application form or details of KRA registration.
● The account holder shall provide a new account opening form duly completed in all respects.
● The DP will give a copy of the Rights and Obligations document to the account holder and keep an acknowledgment of the same record.
● The former guardian’s details get deleted, and the guardian’s signature is replaced with the account holder’s signature.
If the word “minor” was present at the time of account opening, the existing account must be closed to open a new online trading account.
Does a minor need a bank account before opening a trading or Demat account?
No, a minor does not need a separate bank account. You can add the minor to any of your bank accounts. It suffices to open a Demat or online trading account.
However, for tax purposes, the minor’s income is added to the guardian’s income.
A minor Demat account offers several advantages. If the minor has ownership over any shares through family, they acquire the same. But, we must follow the rules of the minor Demat account to ensure it does not misuse the account for the sake of the account holder or any other parties involved.
