Demat account or dematerialized accounts are accounts that allow securities such as shares, bonds, and mutual funds to be held electronically. Opening a demat account in India is relatively easy for anyone above 18 years old. Then the parents or guardians are usually interested in opening an account for children below 18 years. This type of account is generally called a Minor Demat Account. This allows guardians to invest in securities on behalf of a minor child and does not allow him or her to invest until he or she attains the age of adulthood.
What are Minor Demat Accounts?
A Minor Demat Account is essentially a demat account kept in the name of a minor-underage person, so since they are non-competent to contract, the account is operated by the parent or guardian. The investment and other related compliance would then be managed by a guardian until the minor reaches the age of eighteen, after which he must convert the Minor Demat Account into an individual account.
Eligibility Criteria
Age
The Account Holder must be less than 18 years at the time of opening a Demat Account
Guardian Requirement
It should be opened and managed in the name of either of the parents or by a court guardian until the minor attains the status of an adult.
Restriction on Investments
The Minor Demat Account cannot be associated with any trading account operated for intraday trading or derivatives transactions, and it is restricted to delivery-based investments.
Documents Needed
Most commonly, the documentary requirements needed to open a Minor Demat Account include:
Proof of Identity of the Minor
Birth certificate or school certificate
Passport, if available
Proof of Address of Minor
Aadhaar card or passport (if issued)
Applicable in a few cases of the guardian’s address proof may also work
Minor’s PAN Card
Minor’s Photograph.
It requires having a Permanent Account Number (PAN) card for the minor.
Guardian Documents
Proof of identity of the guardian and proof of address
The guardian’s PAN card
Bank Account Details
Minor’s bank account or possibly a joint account with the guardian may be necessary to link the Demat Account with the bank account.
Stepwise Procedure to Open a Demat Account for a Minor
Step 1: Choosing Depository Participant (DP)
This Depository Participant (DP) is an agent with reference to either or both of the depositories, NSDL (National Securities Depository Limited) or CDSL (Central Depository Services Limited). Choosing the appropriate DP, such as banks, stock brokers, or financial institutions, would be the very first step of Opening Demat Account for a minor.
Step 2: Application Form Filling
The account opening form is already filled in by the guardian on behalf of the minor. Personal information, including that of the guardian, is to be included in the form.
Step 3: Attach Necessary Documents
It would be an application form with all the supportive documents such as KYC/identity and address proofs, PAN card, photographs, and bank details of both the minor and the guardian.
Step 4: Verification Process
This is the stage wherein the DP carries out the in-person verification (IPV). At this point, the guardian will be required to be physically present or complete video verification, depending on the process of the DP.
Step 5: Account Activation
Thus, the documents are verified and cleared. Consequently, a Minor Demat Account is opened, and the guardian receives the Demat Account number along with the other credentials to log in to the account.
Operation of a Minor Demat Account
Operational Management
Until the fund attains maturity, the guardian shall supervise the operation of the fund. All securities, which include purchases and sales of different assets, are fetched and managed by the guardian.
Limitations on Investment
There is no margin-based trading and derivative trading for this account; it only allows delivery-based investments in shares, mutual funds, and bonds.
Corporate Benefits
Dividends, bonuses, and rights issues will directly go to the minor’s bank account linked with the same.
Conversion of Minor Demat Account into Regular Account
After the minor turns eighteen, the account should not stay in that form. The oratory steps involved are as follows:
Making of Application
The adult account holder shall submit a request to the DP for conversion of the Minor Demat Account into a normal individual account.
Fresh Documentation
Know Your Customer (KYC) documents should also be redone, which include PAN, Aadhaar, bank details, among other updates.
Account Transfer
All securities of the Minor Demat Account are transferred to a regular Demat Account. Thus, on conversion of the account, it severs all authority of the guardian.
Key Points to Remember
A Minor Demat Account can only be opened through a guardian for a minor.
Opening a Demat Account requires the minor to have a PAN card.
Buying and selling of futures and options, as well as those for intraday transactions, are not permitted; instead, it only takes delivery-based investments.
Upon reaching adulthood, that account or repository is required to be changed to a regular repository account with new documentation.
Conclusion
The Minor Demat Account is a well-organized way for parents and guardians to start investing under their children’s names. Apply for opening a demat account for a minor, from selecting a depository participant to completing the application form, submission of required documents, verification, and activation. While narrow in some operations, the child is definitely beginning to prepare for future investments. When he/she reaches adulthood, the account is converted to an individual standard demat account, which will now be under full control of the minor holder over the assets.
