A Minor Demat Account: In India, investors must have a Demat account to keep the shares they buy or sell online. Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) manage demat accounts (NSDL). Depository Participants, or DPs, permit the buying and sale of shares. Any Indian citizen over the age of 18 can open a Demat account. Joint investors, corporate firms, and Non-Resident Indians can all open Demat accounts.
Indian and foreign investors are pouring more money into the capital markets as the Indian economy grows faster than expected. Not just adults, but also children, are jumping into the fray to profit from the market’s upward trend. So, how can a minor open a Demat account, and what is the minimum age? The sections that follow respond to questions like these, allowing you to make an informed decision when starting a modest Demat account.
A minor cannot execute or be a party to a financial transaction, according to the Indian Contracts Act 1872. According to the Firms Act of 2013, every Indian citizen, regardless of age, can own shares in publicly traded companies. As a result, you can register a minor Demat account in India lawfully. Despite the fact that the Demat account is officially owned by a minor, the minor is unable to buy or sell shares. They will need the father/mother or guardian to function as the principal party who will be able to donate the shares to the minor’s Demat account.
As a result, only a kid’s parent or legal guardian can open a minor Demat account. In fact, until the child reaches the age of 18, all rights to open, close, and manage a minor Demat account belong to the minor’s parent or legal guardian. It is possible to open a demat account in the name of a minor. The account will be managed by a guardian until the minor reaches the age of majority. The father, or in his absence, the mother, must be the guardian. The guardian can be appointed by the court in the absence of both the father and the mother.
You can follow below 4 simple steps to open your children’s a Minor Demat Account
Although there is no minimum age to open a minor Demat account, you must first complete a number of well-organized stages. To open a small Demat account online, go to the website of a stockbroker who is a CDSL or NSDL empanelled stockbroker. Before proceeding to the next phase, the broker will want basic information such as your name, email address, and phone numbers. The next step is to enter the minor’s and parent/KYC guardian’s (Know Your Customer) information.
It is simple to open a minor Demat account. The following paperwork is required:
- Proof of identity (PAN card)
- Proof of address (Aadhar card) of the parent/ guardian and the minor
- Birth certificate of the minor
- Parent/guardian’s bank account details
Limitations for opening the Minor Demat Account
According to reports, only 24% of India’s overall population is financially educated, which is extremely low when compared to the rest of the globe. Having a Demat account in your child’s name teaches them the fundamentals of saving and investing from an early age, allowing them to better organise their costs and develop their money as they grow older.
There are some limitations because the Demat account is registered in the name of a juvenile. The following are the most important limitations:
#1 Only equity trading is permitted
The guardian of a minor cannot trade intraday with the kid’s trading account. Parents and guardians can better arrange their children’s finances with a minor Demat account. This is due to the higher levels of volatility in the intraday trading market. Financial derivatives such as futures and options, on the other hand, cannot be traded using a small Demat account. A minor’s Demat account can only be used to buy and sell stocks.
#2 Can’t open a trading account in the minor’s name
Generally, brokerage houses merge trading and Demat accounts into a single account. The financial law of the land, on the other hand, prevents minors from opening trading accounts.
#3 No joint accounts in minor’s name
A minor cannot hold a Demat account as a joint holder. This is due to the fact that the registration processes for a Demat account for adults and a Demat account for minors differ. This is also due to the fact that Demat accounts for minors and Demat accounts for adults are subject to various laws.
#4 Encourages Financial Literacy
Children are introduced to the world of financial freedom with a minor Demat account. As kids become more involved in the nitty-gritty of the stock market, they gain critical life skills that will help them survive in the world.
Your child’s Demat account can be used to grow and track funds for their schooling and other expenses in the future.
They will also be more conscious of the need of saving and investing money as they get older. When your child grows up, financial literacy could be a huge competitive advantage for him or her. In India, nearly 76 percent of those polled for a study had a poor understanding of basic financial concepts. A youngster who grows up with an online Demat account, on the other hand, has excellent financial literacy from an early age.