The demat account is one of the most important requirements for stock market trading. You cannot purchase or sell shares on the stock market or transfer your shares to another individual without a demat account. While you may be aware that persons over the age of 18 may establish demat accounts, did you know that children below the age of 18 can open a demat account as well?
A minor is a person who has not reached the age of eighteen. The guardian will handle the legalities of creating and running the account on behalf of the minor. You may financially guarantee your minor's future by creating a demat account for them and utilising it to invest in securities. A minor's demat account can be created to hold investments in a variety of instruments, including debentures, shares, and mutual funds. It allows you to plan for your child's future finances while they are still young.
How to open a minor demat account?
Only the natural guardian (parents) or court-appointed guardians can create a demat account in the name of a minor kid.
The guardian must complete standard demat account opening forms. Two KYC forms, one for the guardian and one for the minor account holder, may be required to be filled and signed by the guardian.
The guardian must provide all needed documentation and meet KYC requirements. The minor's date of birth must be stated, and documentation must be provided. The minor's and guardian's PANs may need to be filed.
After the Depository Participant (DP) receives all of the relevant paperwork and information, the DP scrutinises and verifies the details. A demat account for the minor is created after satisfactory verification by the DP.
How is a minor demat account different from a regular demat account?
A minor demat account is different from a regular demat account on a few grounds. Let us discuss the limitations of a minor demat account in comparison to a regular one.
- A joint holder cannot be added to a demat account in the name of a minor.
- The account can only store assets for delivery and can not be used for intraday stock transactions, equity derivatives trading, or currency derivatives trading.
- A minor's Demat account cannot be associated with any Trading account.
- When utilising this sort of account, you can only buy or sell delivery shares.
What happens when the minor turns 18?
When the former minor reaches majority, he or she must complete a new KYC and account opening form, which must be filled out completely. A copy of the rights and obligations agreement will be given to the account holder, who must confirm receiving.
The guardian's information will be removed from the account and replaced with the signature of the demat account holder. If the name under which the original account was established contains the term minor, the old account must be cancelled and a new account must be formed. The holdings in the original demat account will be transferred to the new account by the depository participant.
What happens upon the demise of the minor's guardian?
The original or a copy of the deceased Guardian's death certificate, officially notarized or certified by a Gazetted Officer, or a death certificate retrieved from the government's internet portal with the issuing authority's digital/facsimile signature, may be presented to the DP.
Until the new guardian has fulfilled all requirements, the minor's account will be locked under the relevant reason code.
The new guardian must submit a new account opening form that is completely filled out, along with a KYC application form. The DP must give a copy of the Rights and Obligations agreement to the new guardian and preserve a record of the recognition.For the minor's account, the new guardian must file a new Nomination Form.The guardian of the Minor account holder's information will be updated when the AOF and paperwork have been verified.
Opening a demat account for children has several advantages, for the minor as well as for the guardian. The transfer formalities while using a demat account for minors are less time-consuming than when using a standard demat account.
Furthermore, it provides an excellent foundation for a child's early financial planning. Many individuals use this account to invest in mutual funds, equities, ETFs, and other long-term investments in order to financially secure their child's future.