Demat account: A Demat account, short for dematerialisation account, is an account that holds financial securities in an electronic form. It serves as an alternative to holding physical share certificates. It makes the process of holding investments like shares, bonds, government securities, Mutual Funds, Insurance and ETFs easier, doing away with the hassles of physical handling and maintenance of paper shares and related documents.
In India, the Securities and Exchange Board of India (SEBI) made it mandatory to hold shares and securities in a dematerialized form for most securities traded on stock exchanges. These days, investing in shares in the name of minor children is a common practice among parents who wish to secure their children’s financial future. Here’s a guide on the process of opening a Demat account for minor children in India, including the necessary documents and important considerations.
Documents required for opening minor’s demat account:
When opening a Demat account for a minor in India, specific documents are required to comply with the regulatory and legal requirements. The account is usually opened by the guardian (usually the parent), and the minor can take control of the account once they reach the age of 18. Here are the documents typically required for opening a minor’s Demat account:
Guardian’s Documents:
- PAN Card of the parent.
- Address proof of parent. One can submit Aadhar card, Passport, Driving license, Voter ID card or other documents as proof of address:
- Recent passport-sized photographs of the parent.
- Recent utility bills (electricity, water, gas, or landline telephone)
Minor’s Documents:
- Birth certificate of the minor specifying date of birth of minor and the name of the parents for relationship verification.
- Recent passport-sized photographs of the minor.
Others
- KYC documents are required for both the parent and the minor.
- The bank account of the minor or parent is mandatory for seamless fund transfers.
- The parent/guardian will need to sign declaration and consent forms affirming their role and responsibility for managing the Demat account on behalf of the minor.
- If the guardian is not a natural parent, legal proof of guardianship may be required.
Limitations of minor demat account
Opening a Demat account for a minor comes with certain limitations and conditions due to legal and regulatory considerations. Here are some key limitations associated with a minor Demat account in India.
- The guardian (usually a parent) has control over the minor’s Demat account until the minor reaches the age of 18. The guardian can buy, sell, and manage the investments on behalf of the minor.
- Minor’s Demat account can only be used for trading in equity delivery. Minors are not allowed to engage in equity intraday trading or trade-in equity or currency derivatives.
- Minor’s Demat account cannot be linked to an online trading account.
Benefits of Minor Demat Account
- Improved financial planning: Mutual funds and equity stocks frequently offer higher returns than other investment instruments. Parents and guardians can better organize their children’s finances by opening a minor Demat account. As a result, you can utilize this account to save money for your children’s college expenses, a wedding, relocating for work, etc.
- Promotes Financial Literacy: Children are introduced to the world of financial freedom with a minor Demat account. They gain essential life skills necessary to thrive in the world as they become more and more engrossed with the details of the stock market.
Here’s a general guide on how to open a Demat account for a minor:
- Choose a Depository Participant (DP): A Depository Participant is an agent of the depository who acts as an intermediary between the depository and the investor. There are several DPs in India, including banks and financial institutions. Choose a DP that suits your preferences.
- Select the Right Type of Account: For a minor, a guardian needs to open a “Guardian Demat Account” on behalf of the minor. The guardian could be either a natural guardian (parent) or a court-appointed guardian.
- Complete the Account Opening Form: Obtain the account opening form from the chosen DP. Fill out the form with accurate information. The form typically requires details of the minor and the guardian, along with KYC (Know Your Customer) documents.
- Provide KYC Documents:
- Submit the necessary KYC documents, which usually include identity proof and address proof for both the minor and the guardian. Common documents include Aadhar card, PAN card, passport, and utility bills.
- Since the minor can’t sign legal documents, the guardian will have to provide the minor’s documents, such as birth certificate and photographs.
- The guardian needs to submit their own KYC documents, including PAN card, Aadhar card, passport-sized photographs, and proof of address.
- Sign the necessary declarations and consents required by the DP.
- Submit the completed application form, along with all the required documents, to the chosen DP.
- The DP will verify the provided documents. This may involve an in-person verification or may be done through video KYC, depending on the DP’s policies.
- Once the verification is complete, the DP will provide the Demat account details. You can then start using the account for trading and holding securities.