Home/Blogs/Demat Account For Minors Explained

Demat Account For Minors Explained

stock market
Published Date: 12 Jan 2021Updated Date: 27 Dec 20246 mins readBy MOFSL

With the Indian benchmark indices making highs every new day, capital markets have become increasingly appealing to both domestic and international investors. Interestingly, this trend extends beyond adults, as minors are now becoming a part of this expanding financial landscape. Opening a demat account for a minor provides a gateway to their financial literacy and helps secure their future by laying the groundwork for long-term financial planning. This article explains the process of opening a demat account for minors, the benefits, restrictions, the role of the guardian, and the importance of early financial literacy.

Can a Minor Open a Demat Account?

Under the Indian Contracts Act of 1872, minors are prohibited from entering into financial agreements. However, the Companies Act of 2013 allows minors to own shares in publicly listed companies. As a result, minors in India can legally open a demat account, although the account must be managed by a parent or legal guardian until the minor reaches the age of 18. While the minor technically owns the demat account, they cannot engage in buying or selling shares independently.

The guardian plays a key role in managing the account, including overseeing the transfer of shares, managing investments, and ensuring that the account complies with regulatory norms until the minor reaches adulthood.

Process of Opening a Minor’s Demat Account

Opening a demat account for a minor with Motilal Oswal is a straightforward process, with no minimum age requirement. Here’s how the process works:

1. Select a Stockbroker 

Choose a stockbroker such as Motilal Oswal, who are associated with either Central Depository Services Limited (CDSL) or National Securities Depository Limited (NSDL) to begin the process.

2. Complete the Application

Provide basic information such as names, email IDs, and phone numbers to the stockbroker.

3. Submit KYC Documents

You will need to submit Know Your Customer (KYC) documents for both the minor and the parent or guardian. Required documents include:

  • Proof of Identity (PAN card) for both the parent/guardian and the minor.
  • Proof of Address (Aadhaar card) for both the parent/guardian and the minor.
  • The minor's birth certificate.
  • Bank account details of the parent/guardian.

​​​​​​​​​​​​​​4.  Approval

Once all the documents are submitted and verified, the stockbroker will open the demat account. It’s important to note that a minor’s demat account cannot be opened as a joint account.​​​​​​​

Role of the Guardian

Since minors are legally restricted from managing financial transactions independently, the responsibility of operating the demat account lies with the guardian (either parent or a court-appointed legal guardian). The guardian can transfer securities to the minor’s account through gifts, inheritance, corporate actions, or off-market transfers. Additionally, the guardian must comply with all Know Your Client (KYC) norms at the time of opening and managing the account.

Once the minor reaches 18 years of age, the guardian’s role ends, and the account is transferred to the erstwhile minor, who must then complete the necessary formalities to convert the account into an adult demat account. The new account holder must confirm the balance and submit updated KYC details to continue using the account independently.

Restrictions on Minor’s Demat Account

While opening a demat account for a minor offers several advantages, it also comes with a few restrictions:

1. Trading Limitations

A minor’s demat account can only be used for equity investments. It cannot be used for trading in futures, options, or other financial derivatives due to the high level of risk involved. Additionally, minors are prohibited from intraday trading.

2. No Joint Ownership

Minors cannot hold a demat account jointly with another individual. The account must be solely in the name of the minor, with the guardian overseeing operations.

3. Limited Purpose for Trading Accounts

Although minors cannot independently buy or sell securities, a trading account can be opened in their name strictly for the purpose of selling shares obtained through IPOs, inheritance, gifts, or corporate actions. In this case, the guardian will manage the trading account until the minor becomes an adult.

4. Inactive Status Upon Reaching Adulthood

When a minor reaches the age of 18, the demat account becomes inactive until the individual completes the formalities required for opening an adult account. This includes submitting updated KYC documents and confirming the account balance.

Benefits of Opening a Minor’s Demat Account

Opening a demat account for a minor offers several long-term benefits:

1. Financial Planning

Through a minor's demat account, parents and guardians can invest in equities or mutual funds, which often yield better returns than traditional savings options. This can be beneficial for future needs such as education, marriage, or career-related expenses.

2. Early Financial Literacy

By having a demat account from an early age, minors are introduced to the world of investing and gain an understanding of financial markets. This exposure helps foster financial literacy, providing a competitive edge in understanding personal finance as they grow.

3. Secure Financial Future

With the capital markets growing rapidly, opening a demat account for a minor allows for early participation in wealth-building activities. This not only offers potential growth in investments but also helps secure a child’s financial future.

Importance of Financial Literacy for Minors

In India, a survey revealed that 76% of individuals have limited knowledge of financial fundamentals. Opening a demat account for minors can significantly enhance their financial literacy, helping them develop a deeper understanding of the stock market, investments, and long-term financial planning. As they grow older, children with a foundation in investing are more likely to make informed financial decisions, setting them apart from their peers.

By managing investments for minors and involving them in the process, parents can instill valuable life skills in their children, teaching them the importance of saving, investing, and growing wealth responsibly.

Opening a demat account for a minor is a simple yet impactful way to introduce them to the world of finance while securing their financial future. With the right guidance from parents or guardians, minors can learn to understand the complexities of investing and develop a strong foundation for financial independence. Though there are certain restrictions, the benefits far outweigh the limitations, making it an essential step in early financial planning for children.

 

Financial Calculators: SIP Calculator | SWP Calculator | Compound Interest Calculator | EMI Calculator | FD Calculator | Retirement Calculator | Option Value Calculator | Inflation Calculator | Lumpsum Calculator

 

Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price​​​​​​​

You may also like…

Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C
Click here to see your activities