With the ever-changing lifestyle and the increases in the cost of living, it is important to teach your children about the importance of investing and financial planning from a young age. One excellent way to kickstart their financial journey is by introducing them to the world of investments through a minor demat account.
In India, the Securities and Exchange Board of India (SEBI) has laid down guidelines to facilitate opening demat accounts for minors. These accounts assist them in teaching the importance of financial literacy and responsibility from an early age.
But the question is, can a minor open a demat account themselves, or do they need a guardian? If yes, then how? Read this post to get answers to all these questions. But before that, let us understand what is a minor demat account.
What is a Minor Demat Account?
A minor demat account is a dematerialised account you can open on behalf of your child. It helps in holding securities such as shares, mutual funds, and bonds in electronic form. You can operate the account until your child reaches the age of 18, after which it can be converted into a regular demat account.
Can a Minor Open a Demat Account in India?
In India, a demat account can be opened by any citizen who is above 18 years of age. This includes individuals, joint investors, corporate entities, and even Non-Resident Indians. It’s important to note that according to the Indian Contract Act of 1872, minors are not legally allowed to enter into financial agreements. However, there is an exception under the Companies Act of 2013, which permits all Indian citizens, to hold shares in listed companies regardless of their age.
Thus, it is legally feasible to open a demat account in the name of a minor. Nevertheless, even though the Demat account is registered under the minor’s name, the minor lacks the autonomy to sell or buy shares independently. These transactions can only be carried out by the guardian or parent, who assumes the primary responsibility till the minor turns 18.
Steps to Open a Minor Demat Account
Follow these steps to open a minor demat account:
Step 1: Pick a Registered Stockbroker
The first step is to choose a stockbroker recognised by either Central Depository Services Limited (CDSL) or National Securities Depository Limited (NSDL). Make sure they allow to open minor demat accounts.
Step 2: Access the Broker’s Website
Visit the official website.
Step 3: Share Basic Information
Share the basic details like your name, phone number and email.
Step 4: Enter KYC Information
Enter the KYC information for both the minor and the parent or guardian.
Step 5: Prepare Required Documents
Keep the necessary documents handy, including:
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PAN for the minor and the parent/guardian.
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Proof of Address for the minor and the parent/guardian.
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The minor’s birth certificate.
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Bank account details of the parent or guardian.
Step 6: Upload Documents
Follow the instructions of the broker and upload these documents.
Step 7: Verification Process
The stockbroker will then review the submitted documents. You must be patient during this step.
Step 8: Activate the Account
After verification, your account will be activated.
Benefits of Opening a Minor Demat Account
Opening a minor demat account can have several benefits. Some of the benefits of opening one are:
1. Teaches Children the Value of Money
Opening a minor demat account educates children about the value of money. You can teach them about the concepts of liabilities, assets, stocks, etc. This could help you lay a strong foundation for financial literacy for your children.
2. Long-Term Investment
A Minor Demat Account enables parents and guardians to make long-term investments in instruments like mutual funds and equity stocks in their child’s name. This strategy serves as a means to accumulate funds for the child’s future financial requirements, including education and other expenses.
3. Tax Benefits
Investments made in a minor demat account may be eligible for tax benefits under Section 80C of the Income Tax Act.
Limitation of Opening a Minor Demat Account
There are several limitations to opening a minor Demat account. Some of them are:
1. Inability to Manage Their Account
Minors cannot manage these accounts due to their age and legal capacity. Thus, this requires the assistance of a guardian or parent who assumes the role of the custodian and manages the account on behalf of the minor.
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2. Cannot be a Joint Holder
A minor cannot be made a joint holder of a demat account along with an adult.
Conclusion
A minor demat account in India is a financial instrument that allows parents and guardians to lay a secure financial foundation for their child’s future. By opening this account, you can take a proactive step towards instilling financial responsibility and knowledge in your child, which can be a valuable asset in the further faces of life.
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