Can a Minor Open a Demat Account?

A Demat account is the doorway to market investments, without a Demat account one cannot invest in the securities market. During the Covid-19 pandemic there has been a meteoric rise in the number of Demat accounts opened all over India. The idea of having an alternate source of income is paramount interest. For some it is their primary source of income, seasoned investors having been calculatively investing in the market and generating high profits from their investments.

For the general population the stock market is more of gambling and a pipe dream. The truth couldn’t be far from it. In the modern world in a bid to have an independent source of income has been on the rise and the advent of easy to use investment platforms has vehemently fueled the growth.

The millennial generation is looking to invest and the stock brokers of modern India have helped the Indian population to foray into this investment world with ease. There has been a 38% rise in the net number of Demat accounts 70% of it being in the 2020-2021 year. Out of that 15% of the accounts opened have been in the age group of 22-35yrs.

This demographic shows that the young generation is waking up to gain financial literacy and financial independence. These numbers have pushed the government and its agencies to form laws that aim to regulate the operation of Demat accounts on a more general scale.

Can a Minor Open a Demat Account?  

Bluntly speaking a minor i.e. a person below the age of 18yrs cannot have a Demat account as a single holder.

Now the thing to note here is that it is not impossible to be involved in a Demat account as a minor. A Demat account can be opened in the name of a minor. The minor demat account will be operated by a guardian till the minor becomes major. Guardian has to be the father or in his absence mother. In absence of both, father and mother, the guardian can be appointed by the court.

How To Open A Demat Account For Minors?

1. Visit DP profile and fill in the application with the necessary details.
2. The Permanent Account Number of the minor is a mandatory document required for minor demat account opening with the application. Both the minor PAN and AADHAR card need to be made and interlinked before registering to open a Demat account in the minor name.
3. Permanent address proof and identity proof need to be submitted along with the application form.
4. KYC for the minor collects basic information and that of the guardian collects personal details, bank account details, and an annual salary range.
5. Due diligence will be conducted by the broker.
6. Verify mail ID and phone number through 2-factor authentication.
7. Wait for verifications to be completed by the DP
8. Once verification is complete and your application and documents have been approved the guardian (primary investor) investor will receive a welcome package.
9. Once an NSDL/CDSL registered Demat account number is received, trading can begin by simply transferring a balance from your linked bank account to your Demat account.

Features of a minor held Demat account

Trading account can be opened in the name of the minor only for the sole purpose of sale of securities which minor has possessed by way of investment in IPO, inheritance, corporate action, off-market transfers under the following reason:
1.  Gift / Donation
2. Transfer between family members
3. Implementation of Government / Regulatory Directions or Orders

However, such an account will be operated by the natural guardian till the minor becomes a major. We have to keep in mind a couple of things, a minor cannot enter into a contract with a stock broker to purchase or sell any security. However, a trading account in the name of a minor can be opened only for the sole purpose of selling securities possessed by the minor in the manner specified above.

Benefits of a minor Demat account

A minor Demat account can be extremely beneficial for planning the finances of a child from a very early age. This account can be used to invest in equity to ensure some finances for the future of the child. The child receives a basic education in equity investment which can be helpful in the future. They also understand the importance of saving money, investing in correct instruments, and financial planning, thus securing their future.

When The Minor Becomes A Major?

Now after understanding all the features, benefits, and services of a Demat account that has a minor name partner, we now learn how when the respective minor grows holder what happens then?

A minor cannot enter into a contract with a stock broker to purchase or sell any security. However, a trading account in the name of a minor can be opened only for the sole purpose of selling securities possessed by the minor in the manner specified above.

Wrapping Up

Reports show that 24% of the total population is financially literate in India, which is very low compared to other countries in the world.  Having a Demat account in your child’s name explains to them the basics of savings and investment from an early age thereby giving them a great understanding about planning their expenses and growing their wealth better when they grow up. So let's understand about Can a Minor Open a Demat Account. its guidelines, features and more about minor Demat accounts.

They will also grow up with a greater awareness of saving and investing money. This financial literacy can be your child’s big competitive edge when he or she grows up. In India, close to 76% of people surveyed for a study showed a poor grasp of the basics of finance. In contrast to this, a child who grows up with an online Demat account has great financial literacy, very early on in life.