Who is a minor?
As per the Indian Majority Act, 1875, anyone under the age of 18 years is a minor in India. A minor cannot enter into any legal contract, but they cannot be sued as the contract is null from the very beginning. Therefore minors cannot directly make share market investments. He/she needs a guardian to invest on his/her behalf.
However, as per the Companies Act, 2013, any citizen of any age can own shares of listed companies. Hence, minors can have Demat accounts to their name but cannot trade shares via that account. Such transactions, as well as the opening of the Demat account itself must be carried out by the ‘guardian’.
Requirements for share market investment on behalf of a minor
- All minor investments must have a specific ‘Guardian’ responsible for managing them. Usually it is a parent who acts as the guardian. In the absence of parents, the court appoints a ‘guardian’ for the minor.
- An application must be made to a stockbroker for the minor Demat account, starting with basic details such as contact numbers and email.
- The minor’s birth certificate (as proof of age) and documents proving the address (such as Aadhaar card) of the minor and the guardian are required.
- A document proving the relationship between the minor and the guardian is required.
- The guardian must submit relev ant details such as Permanent A/c No. (PAN) of both the minor and himself, bank details and complete Know Your Customer (KYC) requirements.
- Although ownership lies solely with the minor child, the guardian will make all the payments and receipts related to the investments.
- Minor accounts cannot be joint nor have nominees. Any paper shares held jointly with the minor must be transferred to the minor’s Demat account once he turns 18.
- A 3-in-1 account (Demat a/c + Trading a/c + Bank a/c) can be opened in the name of a minor.
Limitations of minor Demat accounts in share market investments
- Minors cannot operate a Demat account by themselves
- A minor’s Demat account can be used to trade only in equity delivery. Therefore, the account cannot be used for trading in equity or currency derivatives or equity intraday.
What happens to a minor Demat a/c and its stock market investments when the minor turns major?
The minor Demat account ceases to be operational when the minor in question reaches the age of 18 years. Therefore, a fresh application with the required documents (e.g. PAN and KYC) must be submitted by the account holder. The shares held can be transferred to this new account without the approval from the former guardian and any range of investments can now be made from that account. The child’s signature, attested by the bank, would be used henceforth.
Other avenues for investment by minors
A minor, with a guardian and requisite documents, can invest in:
- Gold – through Sovereign Gold Bonds, digital gold through GoldRush
- Real Estate – a minor can buy real estate jointly with the parents, the contract being signed by the parent as the guardian of the minor
- Public Provident Fund – a PPF can be opened by a guardian in the name of the minor.
- Mutual Funds
- Sukanya Samriddhi Yojana – savings scheme for the girl child
Benefits of having a minor Demat account
Better financial planning –
equity and other trades give better returns than bank deposits. It is a good idea to start investing early in order to exploit compound growth in the stock market.
Increased financial literacy –
knowledge about the stock market is an important part of financial planning and independence. It is highly beneficial if children are made aware of it at an early age so that they can start investing immediately after they reach 18 years of age.
Now that you know how to open a Demat account for a minor (in other words, how to make quick money under the age of 18), you can check out Angel One, one of India’s most popular trading apps.