How to Open Demat Account for Minors Online in India | Espresso

Open Demat Account for Minors

The Securities and Exchange Board of India (SEBI) allows guardians to open a Demat Account for minors. While guardians need to operate these accounts, there are many benefits that can be derived when you open a Demat Account for minors. In this article, we will talk about the Demat Account for minors and look at how you can open one and various regulations and restrictions surrounding it.

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How to Open a Demat Account for Minors?

First, according to the Indian Contracts Act, 1872, a minor cannot enter into a legal contract or agreement. However, the Companies Act, 2013 permits an individual of any age to hold the shares of a company. Therefore, it is possible to open a Demat Account for minors, but the minor cannot buy or sell shares. The shares held in the Demat Account have to be gifted by a legal guardian. Thus, only a parent or legal guardian can open a Demat Account for minors until the child attains 18 years of age.

To open a Demat Account for minors, the parent/guardian has to approach a Depository Participant (DP) and submit:

  • The Account Opening Form with details of the minor and the guardian. Also, two KYC forms will have to be filled, one for the minor and the other for the guardian. However, the guardian will have to sign all forms and documents.
  • PAN Card of the guardian and the minor
  • A Proof of Identity document as specified by the DP
  • A Proof of Address document as specified by the DP
  • The birth certificate of the minor
  • Bank details where the minor and guardian are joint account holders, etc.

Limitations of a Demat Account for Minors

Here are some restrictions applicable to a Minor Demat Account:

  • Only delivery orders can be placed through a Minor Demat Account. This account cannot be used for trades in equity intraday, equity derivatives, and currency derivatives segments.
  • You cannot link a Minor Demat Account to an online trading account.
  • A Minor cannot be a part of a joint Demat Account.

What Happens When the Minor Turns 18?

If the word ‘Minor’ was present in the Account Holder’s Name at the time of opening the account, then the Demat Account will have to be closed, and a new Demat Account will have to be opened.

If the word ‘Minor’ was not present in the Account Holder’s Name, then the account holder (the minor who has turned major) will have to submit the following documents:

  • New account opening form and KYC form
  • Signature on the Right and Obligations document
  • The DP will delete the details of the guardian and replace his/her signature with the signature of the account holder

What Happens in case of the Death of the Guardian of a Minor Demat Account?

Here is the process to be followed in the event of the death of the guardian of a minor’s Demat Account:

  • The original death certificate of the guardian or a copy of the same duly notarized or attested
  • The DP will freeze the minor’s account until a new guardian completes all formalities
  • The new guardian will have to fill the account opening form, KYC form, and submit all required documents to be added as a guardian to the minor’s Demat Account.
  • All details of the deceased guardian will be deleted from the account.

Since you cannot trade from a Minor Demat Account, it can be a good way to invest in your child’s name and prepare for the costs in the future. As the child grows, he/she can manage investments on his/her own.

How to open a paperless Demat account and a paperless trading account?

You can open a Demat and trading account online by following the steps mentioned below:

  • Identify a depository or a depository participant.
  • Visit the website of this depository or depository participant to fill out an account opening application form. This form will require your basic details like name, address, email ID, phone number, PAN number, etc.
  • Submit soft copies of the required documents. These include your ID and address proof.
  • Complete in-person verification. This may be done through a video or an audio call, depending on the requirements of your broking house.
  • After you review all the details, you can e-sign the form using your Aadhar number. You can enter the OTP you receive on your Aadhar linked mobile number to validate.

Once your application form is submitted, you can sit back and relax. There is no need for any kind of paperwork. The entire process is digitized and can be completed online. You will soon receive the login details for your Demat and trading account. You can use the same to log in to your account, deposit funds from your bank, and start trading.

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FAQs

In India, any parent of a child less than 18 years of age or a court-appointed adult can be a guardian of a minor for opening a Demat Account for minors.

No. Since a minor cannot enter into a legal contract, he/she cannot operate the Minor Demat Account. This has to be done by the guardian on behalf of the minor.

Since trading is not allowed from a Minor Demat Account, only delivery trades can be done by the guardian on behalf of the minor. Also, the guardian can gift shares to the minor.

You will need the PAN card for the minor and the guardian. You will also need proof of address and proof of identity for both the guardian and the minor. Additionally, the birth certificate of the minor will need to be submitted as proof of age. Lastly, you will have to submit details of a bank account where the minor and the proposed guardian are joint account holders.