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Opening a Demat account for your child is an excellent approach to start educating them about financial planning at a young age. Many parents begin this journey to safeguard long-term wealth or to explain concepts such as equity, mutual funds, and even initial public offerings (IPOs).
If you're considering applying, you should also explore the risks and terms associated with investment in IPO beforehand. For instance, some brokers may allow adults to open a demat account online, but it may not be possible everywhere. Additionally, children require a guardian-operated account.
Key Takeaways
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A guardian is solely responsible for a minor's demat account until the child reaches the age of 18.
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Minors cannot trade independently; the account may only be used for holding and particular transfer reasons.
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Account opening necessitates physical evidence and dual KYC for both minors and guardians.
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When the minor achieves maturity, the account must be switched to one for a major.
Who Can Open a Minor Demat Account?
A Minor Demat Account can be set up for any child under 18, allowing them to lawfully retain shares without participating in trading operations. Under Indian law, minors can hold shares, and this provision will enable parents to make long-term investments in their child's name. The account can be opened only for the sole purpose of selling securities possessed by the minor by way of investment in IPO, inheritance, corporate action, off off-market transfers under the following reasons:
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Gift / Donation
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Transfer between family members
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Implementation of Government / Regulatory Directions or Orders”
However, because children are unable to sign financial contracts, the account must be created and handled solely by a natural guardian, usually a parent, or a court-appointed guardian. This guardian operates as the account's authorised operator, providing documentation, authorising transactions permissible for minors, and supervising the transfer of securities donated or assigned to the child.
While the minor owns the securities, the guardian is responsible for all operations until the child reaches the age of 18, at which point the account can be transferred to the young adult's name via a standard conversion process.
Only Physical Applications
At present, you cannot apply online for a demat account for minors with Angel One. You need to complete the application process via offline mode only. Hence, all your documentation will have to be submitted in print format only. However, once the account is activated, you can continue to enjoy all the online features offered by Angel One.
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Download & Fill the Application form
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Prepare a set of all supporting documents, such as:
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Minor’s birth certificate
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Minor’s PAN card
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Minor’s address proof
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Minor’s bank statement
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Guardian's PAN card
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Guardian's address proof
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Send the filled form and the documents to: Angel One Ltd. Osman Plaza,6-3-352, 2nd Floor, Road -1, Banjara Hills, Hyderabad -500034.
Important Points to Remember During Application
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Signature: All signatures in the application must be that of the guardian only. The guardian needs to sign the application on behalf of the minor. This includes self-attestation of all the documents as well as the endorsement across the minor’s photograph.
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Photographs: As a KYC requirement, photographs of both the Minor and the Guardian will be required
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Dual KYC:
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Minor’s details need to be filled out on the 1st page of the KRA form. The guardian needs to sign across the Minor’s photograph on this page
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Guardian’s details need to be filled on the 2nd page of the KRA form
When the Minor Reaches 18 Years of Age
Once the minor reaches 18 years of age, the minor will need to raise a request with Angel One to convert the demat account into a normal (major’s) demat account. Documents that need to be submitted include:
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Address Proof
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Bank Statement
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Photographs
Once confirmed, the guardian’s details will be deleted from the account and his signatures will be replaced by that of the minor (now turned major).
In Case of The Guardian’s Death
In the unfortunate situation of the death of a guardian operating a minor’s demat account, an application for change of Guardian needs to be submitted to Angel One.
This application will also need to have the old guardian’s death certificate along with the usual list of documents needed (as detailed above)— Opening a demat account for your child will help him get an early exposure to the idea of investment. It will also help you segregate the funds you want to allocate for them. However, probably the first step to complete before you embark on this initiative is getting a PAN Card for the minor and a functioning Bank Account. Also, speak with your financial advisor to understand in detail the guidelines and laws governing investments made in the name of minors before taking any financial decision. — Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on Investment or recommend buying and selling any stock. Account would be opened after all procedures relating to IPV and client due diligence is completed.
Limitations of a Minor Demat Account
Before delving into the limits, it's crucial to note that, while a minor can open demat account, its usage is restricted by strict laws that limit how it can be used. The following are the main restrictions to bear in mind:
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Restricted Investment Options: Minors are unable to engage in active trading or speculative products. Derivatives, intraday transactions, and commodities contracts are still unavailable to them.
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Guardian-Driven Transactions: Every permitted action in the account must be completed by a parent or legal guardian. The need for guardian consent restricts the minor's capacity to make autonomous financial decisions.
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Limited Operational Control: Minors cannot place buy or sell orders or manage their accounts on their own. The guardian makes all portfolio decisions, including transfers and redemptions of securities.
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Lack of Autonomy in Portfolio Management: Until they attain maturity, the minor has no authority to make decisions. All investing activity, including the acceptance of donated or inherited stocks, is externally controlled, allowing only passive ownership.
What are the Benefits of a Minor Demat Account?
Although demat for minor accounts has operational limitations, they also provide significant benefits, making them a solid basis for long-term financial growth. Here are the main benefits:
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Early Start for Financial Planning: Parents may start establishing a diverse financial portfolio for their children. Long-term investments, such as shares and mutual funds, have the potential to yield larger returns, assisting in the achievement of future goals such as education, skill development, and other significant life milestones.
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Structured Wealth Building: Investments held in a minor's name are kept separate from the guardian's own finances. This enables families to set aside money, particularly for their child's future, without combining it with household reserves.
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Improves Financial Awareness: Exposure to genuine investment statements, dividends, and market performance teaches students about how money increases over time.
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Smooth Transition to Adulthood: By the age of 18, the young investor has already established a portfolio of investments. The switch to a standard Demat account grants them direct management over an existing portfolio.
Conclusion
Opening a minor demat account is an excellent way to start your child's long-term financial planning while also helping them build an early understanding of investments. Though the account must be managed by a guardian and has some limits, it nonetheless allows families to create a specialised portfolio for future aspirations, such as school or important life events.
Starting early also helps youngsters to progressively learn how markets function, helping them to make good financial decisions as adults. With the correct direction, this account may help them build a solid financial foundation for the future.
