How to apply for an IPO under a minor’s name? A guide

Minor is a person who is below the age of ‘18’. The number 18 for claiming a person as an adult can vary from country to country, but most of the countries including India considers an individual as an adult who is 18 or above. A minor can definitely apply for an IPO under the guidance of a guardian.

Let us look at various aspects, under how a minor can hold an IPO.

How to apply for an IPO for a minor?

Firstly, to begin a demat account should be opened under the name of the minor with a permanent Pan Card number. Pan Card is usually that of parents as minors are not eligible for pan card also because they don’t have a fixed income of their own. Even though a demat account can be opened for a minor, a trading account can’t.

Trading account of a parent or guardian must be linked with the demat account of the minor. Then the account thus made should be linked with the bank account used by the minor, and further KYC forms of the minor and the parents need to be submitted. Then the account will be functional and the investor can.

Third party facilities like Blocked accounts (ASBA) are considered ideal for making payments. But it is important to note that when considering ASBA banks don’t allow this facility to minors, therefore parents can access the option by using their own accounts.

It can be noted that minors aren’t eligible for tax deductions and any grants are subjected to be taxed. Once the minor reaches the age of an adult he/she can close the minor account and start with a new account or can convert the account into a major one and can start with the investing process again.

Importance of investing from a minor’s name

Several consider investing from a minor’s name beneficial because of various reasons. First being that the minor understands the meaning of saving funds from an early age and how important it is to invest with regularity. Investing from a minor’s name is also tax efficient. 

Also, the gains earned from the minor’s account are not clubbed with parent’s which result in keeping them aside and not use the reward until the minor enters adulthood after which it can be used for his/her own good and future.

Tax Implication on Minors

As fruitful as it may sound, financial advisors suggest not to apply for IPOs under a minor’s name because for this the parents or guardians have to indulge in bank formalities for making a bank account, demat account etc and plus there is no special tax rates for minors. 

The short-term (assets held for less than a year) are taxed at 10% while the long-term gains are tax-free. The minor will be eligible for exemptions and deductions extended to any other taxpayers.

What happens when the minor turns 18?

When the minor turns 18, they can decide to convert their minor Demat account to a major one by replacing the details of their parents/guardian with their own or they can close the functioning minor account and make a new one.

Because, when the individual was a minor they had to use a demat account which was under their name but had details of their parents/guardians, trading account linked to their demat account was not theirs as they weren’t eligible for the same and pan card was also of the parents/guardians. 

Once they turn 18, they are eligible for all such accounts and cards, and thus can either change the details or can close the existing ones and start anew.

Additionally, investing in IPOs is always considered beneficial as the companies who decide to go public have a lot of scope for growth and double the reward of the investor. Like equity investments, IPOs are also considered to provide rewards for a long-term which can be useful for investors who are looking to spend the funds in an expensive leisure.