Those Millennials who think of family planning want their family, spouse, and children's futures to be secure when they are in their prime ages. As they grow older, both productivity and passion for work witness a decline. So even before they take their first step toward family planning, they anticipate future expenses and try to match their income with expenses or cut out unnecessary expenses.

In today’s India, where people prefer to transact through UPI, purchase digital gold, and everything is going digital, the stock market is ripping higher, and people prefer the financial market as a way to grow their savings rather than traditional fixed deposits and gold ornaments. For that purpose, having a demant account is essential. Parents and guardians lay the saving foundation for a child by gifting them stocks or a portfolio of securities. Here is when demand meets supply and investors feel the need to open a demat account with a stock broker.

Can a Minor Open a Demat Account?

According to the Indian Contracts Act of 1872, minors are not legally allowed to execute or be parties to financial agreements. However, a demat account in the name of a minor can be opened only for the sole purpose of keeping securities under the supervision of a guardian, major, or parent. In the case of a minor, a parent or legal guardian is required to act as the primary party responsible for transferring shares to the minor's Demat account as a gift. The point to be noted here is that a minor cannot be a joint holder in a demat account.

Also read: What is a Demat Account in Simple Words?

Features of Minor Demat Account

• Limited Control

Till the time a minor (under 18 years of age) doesn’t turn major (usually above 18 years), he or she will have limited control over the operability of the account. The parent or the authorised guardian acts as the authorised signatory and makes investment decisions on behalf of the minor.

• Joint Holding

A minor Demat account is typically held jointly by the minor and the parent or guardian. The parent's or guardian's name appears before the minor's name in the account, indicating their role as the primary account holder.

• Trading Restrictions

An account that is opened under the name of Minor is not allowed to engage in intraday trading, short-selling, or trading in derivative instruments. Minor account is also not eligible for buying directly from the equity segment. Now how will the minor account get funded. The account will get funded by way of gifts from family members. Some of the investment criteria that a minor account can have in its portfolio include stocks, mutual funds, government securities, and others.

• Parental Consent

Before authorizing any transactions on the minor Demat account, the parent or guardian must provide prior consent. This guarantees that the investments are in accordance with the financial objectives and risk tolerance of the family of the minor.

• Tax benefit

Earnings through the investment made through a minor account are considered guardian or parent income, which is usually considered higher. The parents or guardians whose income includes the minor's income can get a tax benefit.

• Conversion to a Major Account

Upon reaching the age of major (above the age of 18), the minor account get inactive and hence a new regular demat account has to be opened by providing the necessary documents. The saver can then invest in range of segments, given stock broker approval.

• Transferability

In the unfortunate event that the parent or guardian wishes to transfer the minor demat account to another guardian or individual, such transfers are possible. The necessary procedures and documentation need to be followed to affect the transfer.

Benefits of a Demat Account for Minors

• Financial literacy

Opening a demat account often leads to greater financial literacy. It teaches them the value of savings, the formula of compounding growth, etc. from an early age, thereby giving them a great understanding of planning their expenses and growing their wealth better when they grow up.

• Saving for a child’s future

Accounts funded in small denominations at regular intervals lead to a large corpus after years of investment. This corpus can lay the foundation for financial independence at an early age.

• Capital appreciation

Guardians who fund minor accounts don’t make many changes on a daily basis; often, they forget about the investment. The investment over the years yields multifold returns to the saver.

• Diversification of investments

A minor demat account can invest in multiple investment horizons, starting with equity, mutual funds, approved government funds by SEBI, and other financial instruments.

Read more: Features & Benefits of Demat Account

Limitations for Minor opening Demat Account

• Some of the limitations of the Demat account are that minors cannot independently operate the Demat account until they turn 18 years old. All transactions must be routed through an appointed guardian who controls the account.
• SEBI has imposed restrictions on the maximum holding value in a minor Demat account.
• Financial vehicles like shorting stocks, trading intraday, and derivatives, i.e., F&O, cannot be traded using a minor Demat account. Only equities, mutual funds, and allowed government securities can be bought and sold using a minor’s Demat account.
• A minor cannot be the joint account holder of a Demat account.

Process of Opening a Minor Demat Account.

Unlike a regular demat and trading account, in which the saver should have to be over the age of 18, In the case of a minor account, there are no minimal age criteria on the part of the minor, but there are certain procedures that one should follow.

As the primary account beneficiary will be in the name of the minor, but the guardian will be required to operate the account, both the minor and guardian documents will be required. The documents required are the following:

1. Proof of Identity (PAN card) for both the parent/guardian and the minor.
   2. Proof of Address (Aadhar card) for both the parent/guardian and the minor.
   3. The birth certificate of the minor.
   4. Bank account details of the guardian/ parent.

What Happens to the Demat Account When a Minor Turns Major?

On turning a major, the minor account will become inactive. The account holder (minor) needs to open a regular demat account by providing all the necessary details. Any existing shares will be transferred to the new account, enabling the account holder to trade or invest in other segments, subject to eligibility and approval from the stockbroker.

Conclusion

In conclusion, a demat account can be opened in the name of a minor with the consent and involvement of their guardian or parent. The account provides a secure and convenient way to hold financial assets in electronic format with multiple benefits. Although minimum age is not a hurdle for opening a demat account, certain restrictions, like the amount of portfolio, investment segments, and others, have been imposed on the part of the beneficiary and person operating a minor account, which are discussed in the above article.