What is a Minor Demat Account? Process, Benefits & How to Open It
A minor demat account is an investment account opened for a child below 18 years of age. The word “demat” means dematerialised. This means shares, bonds, and mutual funds are kept in electronic form, not on paper. This account lets children legally own securities. But because minors are not allowed to sign contracts, the account is controlled by a parent or legal guardian until the child reaches 18 years of age.
Through this account, parents can begin saving and investing at an early age for the future of their children. It works like a normal demat account in terms of holding securities, but the rules for trading and usage are stricter.
Who Can Open a Minor Demat Account?
- Age Requirement: Any citizen of India under the age of 18 years is eligible for a demat account for minors.
- Guardian Requirement: Because children cannot trade on their own, a parent or court-appointed legal guardian must manage the account.
- Single Ownership: The account is held in the child’s name alone, with no joint ownership with others.
- KYC Rules: Both the guardian and the minor must complete KYC (Know Your Customer) requirements to ensure compliance.
- Legal Compliance: All decisions are made by the guardian, but the securities are legally owned by the child.
Documents Required for Minor Demat Account
| Document | Purpose |
|---|---|
| Birth Certificate of Minor | To prove the age of the child |
| PAN Card of Minor | Mandatory for account opening |
| PAN Card of Guardian | To verify the guardian’s identity |
| Aadhaar Card of Minor & Guardian | Identity and address proof |
| Bank Details of Guardian | To link for payments and transfers |
| Photographs of Minor & Guardian | Required for visual identification |
In the absence of these documents, the demat account for a minor cannot be opened. Some Depository Participants (DPs) might also request additional documents as per their policy.
How to Open a Minor Demat Account – Step-by-Step Guide
- Choose a SEBI-registered broker or Depository Participant (DP) linked to NSDL or CDSL.
- Fill in the application form with the details of both the child and the guardian.
- Attach the necessary KYC documents such as PAN, Aadhaar, birth certificate, guardian’s bank details, and photographs.
- The guardian should sign over the child’s photo and verify all documents.
- In-Person Verification (IPV) might also be requested by some brokers. This can be carried out at a branch or via video call.
- When the verification is done, the demat account is opened in the child’s name, but only operated by the guardian.
This process makes sure the account is safe and legally valid. Verification may take a few days, but once active, the account stays valid until the child turns 18.
Also Read: How to Open a Demat Account With Findoc?
Operational Rules & Limitations of Minor Demat Account
A minor demat account is less versatile than a normal one. These are the rules:
- The account can only be used for equity delivery trades (buying shares and holding them).
- No intraday trading (buying and selling on the same day) is allowed.
- No derivatives trading (Futures & Options, currency derivatives) is permitted.
- The account cannot be linked to a trading account, which means no independent online trading.
- All transactions have to be performed by the guardian on behalf of the child.
These regulations are enforced since children are not legally able to sign contracts as per the Indian Contract Act.
Benefits & Use Cases of Minor Demat Account
Opening a minor demat account has several advantages:
- Early Financial Planning: Parents can begin investing early for the future objectives of their child, such as higher studies, marriage, or job prospects overseas.
- Long-Term Wealth Growth: Equity and mutual funds yield greater returns than traditional savings such as fixed deposits. Investments at the age of the child may turn very large when he/she becomes an adult.
- Financial Literacy for Children: As children grow older, parents can involve them in discussions about how their demat account works. This builds awareness about investments, risks, and financial independence.
- Gift of Securities: Guardians can transfer shares or mutual funds into the child’s account as gifts, making it a meaningful way to build wealth.
In short, it allows families to plan ahead while giving children a head start in the world of investing.
What Happens When the Minor Turns 18? Conversion Process
When the child reaches 18 years of age, the minor’s demat account becomes inactive. To continue, the following steps must be taken:
- Submit a fresh demat account opening form in the individual’s name.
- Provide updated KYC documents like Aadhaar, PAN, and bank details.
- Complete an In-Person Verification (IPV) in the minor’s own name.
- Once verified, the old minor account is closed, and all holdings are transferred to the new major account.
- After conversion, the young adult can buy and sell independently across all segments, including intraday and derivatives.
Adding a Guardian or Changing Guardian: Procedure & Scenarios
At times, there can be a requirement to add or modify the guardian. Here’s how it goes:
- Adding a Guardian: When no guardian was mentioned previously, a legal guardian or parent needs to be added with proper documents.
- Changing Guardian: When the initial guardian mentioned is not available or deceased, a new guardian can step in.
- Documents Needed: Provide PAN, Aadhaar, and relationship documentation of the new guardian. When the old guardian dies, their death certificate is also needed.
After approval, the new guardian becomes entitled to manage the account. This keeps the account active and legally valid until the child turns 18.
Conclusion
A minor demat account is an easy way to begin a child’s investment journey early. It may have some limitations, but it helps families plan for the future and build long-term wealth. It also instills financial learning among children from a young age. If you want to open one, you can do it through Findoc. You can also open free demat account online with ease and start investing for your child’s future today.
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Frequently Asked Questions
Yes, you can have a demat account for a minor who is less than 18 years old. But the account should be held by a legal guardian or a parent until the child is grown up.
A parent (mother or father) is usually the guardian. If parents are not available, a court-appointed legal guardian can operate the account on behalf of the minor until they turn 18.
A minor demat account only allows delivery-based equity investments. Intraday trading, margin trading, and derivatives like futures and options are not permitted. The account cannot be linked with a regular trading account.
Yes, a 16-year-old can have a demat account in their name, but it must be opened and operated by a parent or guardian. The minor cannot trade independently until turning 18.
Yes, a minor can invest in mutual fund SIPs through their demat account. However, the parent or guardian will complete all paperwork and manage the investments until the minor becomes an adult.