The HUF, or the Hindu Undivided Family, constitutes a set of laws in different spheres of life. There are HUF laws in the areas of marriage, inheritance and financial areas, including taxation and investment. The HUF is taken as a single unit, so members of a single Hindu family are considered as one unit for financial purposes. According to regulations set forth by this Act, all members of a Hindu family earning an income jointly come under its purview. In this way, while investing in equity, the HUF rules allow for a HUF Demat account to be started.
An individual wishing to invest in equity is permitted to open a Demat account with ease. This can be done through a DP, a depository participant, which is technically a bank or a brokerage firm. If a HUF is considered, for all financial and taxation purposes, as a single unit (like a single individual), then the HUF can open a Demat account. The HUF is one entity with a common ancestry, including a head of the unit.
The Indian government recognizes the HUF under the purview of a different set of rules compared with those of individuals. Furthermore, HUFs are registered entities in India, and they enjoy the same rights as any citizen of India enjoys. Therefore, rules applied to individual investors and traders are also applied to HUFs.
So, can a HUF open a Demat account? The answer is in the affirmative. A HUF can take part in any financial activity and can invest in any instrument, including a subscription to an upcoming IPO. The HUF consists of all the family members, including children who are not yet married. The head of the family, typically the eldest male member, is known as the “karta”. In case there is no eldest male, the eldest female acts as the head. Under the HUF, if the Karta passes away, there are no official laws governing the HUF’s new Karta. The next eldest member simply takes over the role. Therefore, if the HUF has a Demat account under the name of the Karta, with their passing away, the Demat account is transferred to the name of the next Karta. The members of the HUF are known as “coparceners”.
A HUF Demat account can be opened, and trading and investment may be undertaken by a HUF. In addition, the HUF may trade and invest in securities and hold these in the Demat account as well. It is important to note that the HUF, as a single unit, will also possess a PAN card. In such cases, Karta’s name will be on the Demat and trading account, as well as on the PAN card, with a provision mentioned under the HUF act. Presently, it should be noted that HUFs cannot open Demat accounts in online mode. This is due to the fact that under HUF laws, all members of the HUF have to present themselves in person at the premises of the depository participant.
Any HUF is permitted to open a Demat account and encouraged to invest in the markets, just as any HUF is entitled to subscribe to an upcoming IPO. The HUF gets certain advantages, especially in terms of taxation, as each individual is not taxed separately. Tax benefits on investments are also at higher slabs than certain individual benefits.