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Demat Account For Minors Explained
One of the main prerequisites for trading in the stock market is the demat account. Without a demat account, you can neither buy or sell shares through the stock exchange nor transfer your shares to another person. While you might be aware of the fact that individuals above the age of 18 can open demat accounts, did you know that you can open a demat account for minors as well? That’s right. Here’s everything that you need to know about demat accounts for minors.
Why would you need to open a demat account for minors?
By opening a demat account for minors, you get to financially secure their future by using the said account to invest in securities. With a demat account, you can invest in a wide-range of stock market financial instruments including stocks, long-term bonds, government securities, mutual funds, and ETFs. It gives you the freedom to financially plan for your child’s future while they’re still young.
How do you open a demat account for minors?
Opening a demat account for minors is a fairly straightforward process. Since minors are incapable of entering into a contract by themselves, only an authorized guardian like the parent of a child can open an account for them.
Although the demat account contains the information of the minor, the guardian would be the person signing all the documents on behalf of the minor. Furthermore, the guardian is responsible for furnishing all the necessary documentation, such as the proof of address, proof of identity, proof of age, photographs, and PAN details of both the guardian as well as the minor.
Once all of the required paperwork and information is furnished to the Depository Participant (DP), the DP then proceeds to scrutinize and verify the details. Upon successful verification by the DP, a demat account for the minor is created.
Are there any restrictions imposed on a demat account for minors?
Yes, there are certain restrictions that are imposed on minor demat accounts when compared to regular demat accounts. Here’s a brief look at some of them.
1. Minor demat accounts are not authorized to participate in the trading of certain segments such as intraday and derivatives like futures and options.
2. Minor demat accounts are permitted to operate only in the equity delivery segment.
3. Minor demat accounts are not allowed to be linked to a trading account.
What should minors do once they turn 18?
When a minor in possession of a demat account turns 18, he or she is required to furnish a new set of Know-Your-Customer (KYC) documents and a duly-filled KYC form with his or her own signature to the Depository Participant (DP). In addition to these documents, the minor would also have to submit a duly-filled new account opening form.
Upon receiving the above documents, the DP would scrutinize and verify the details mentioned therein. After successful verification, the DP would remove the guardian’s details and replace it with that of the minor.
The above process for conversion of a demat account for minors to a regular demat account is only applicable if the account does not contain the word ‘minor’ in the account holder’s name. If the word ‘minor’ is present in the account holder’s name, then the demat account has to be surrendered and a new one has to be opened.