As per The Indian Contract Act, 1872, minors cannot be a party to any contract or agreement but the Companies Act allows a person of any age to hold securities of a company. Thus, it is permissible to open a Demat account in a minor’s name.
Generally, a minor’s Demat account is opened to grow and keep a track of funds for their future needs and expenses like education needs, wedding funds, relocation of jobs and any other expenses, that may be subjective. Moreover, the minor will become financially literate and aware about savings and investments.
There are two methods in which demat accounts can be opened in the name of a minor -
- Through Natural guardian, i.e. Parents; or
- Through Court-appointed guardians i.e., Legal Guardian
A guardian has to conduct all the formalities on behalf of the minor for opening and operating the Demat account. The process for opening an account in the name of a minor is similar to that of opening a regular Demat account. A standard Demat account opening form must be filled for the same.
Steps to create a Demat account for minors:-
- An account opening form must be filled by the guardian.
- Two separate KYC forms, one for the guardian and the other for the minor, have to be provided with the account opening form.
- The KYC formalities of establishing identity and address has to be completed for both the minor and the guardian.
- Date of birth and documentary proof (birth certificate) has to be provided.
- All the documents should be signed by the guardian.
- PAN and Address proof of minor and the guardian must be attached.
- Bank proof in the name of minor needs to be submitted along with AOF.
On submission of all these documents, a Demat account will be opened with mastertrust.
It should be noted, that a Demat account in the name of a minor cannot have a joint holder and nominee and the account can hold securities on a delivery basis. A minor can apply to IPOs and buyback offers through his/her demat account. A parent can be the guardian to the Demat accounts for all of his or her children.
The trading account in the name of minor cannot be used for intraday trades in equity, trading in equity derivatives and currency derivative trading. Furthermore, financial derivatives like futures and options also cannot be traded using a minor’s Demat account.
The Demat account can only be operated by the guardian till the minor becomes a major. On becoming a major, the minor’s demat account becomes unserviceable till the time a fresh account opening form along with supporting documents (Re-KYC) have been submitted, if the said minor wishes to hold any securities.
A minor does not have any tax implications from the earnings made through the demat account. The minor’s income is added to either their parents’ income, i.e. the parent whose income is more or the guardian’s income.
In case of death of the guardian, a notarized copy of the death certificate must be provided to get the account frozen and after the documentation to appoint a new guardian is completed, the account can be reactivated to normalcy.
A minor account is highly useful in making children understand the importance of saving which will be very helpful in the future. They will also learn the importance of investing in the right financial instruments and understand financial planning. Connect with mastertrust to open a demat account for your minor.