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4 Important Rules to Follow Demat Account for Minors

Similar to a Demat account opening process for adults, there now exists a Demat account opening process for minors as well.  The purpose behind the account opening remains the same; investing in securities that can help generate high returns and help meet your financial goals. 

However, when it comes to a minor Demat account, certain rules need to be followed to eliminate any malpractice of the account. In this blog, we will have a look at these to help you understand the process better. 

Rules to be Followed in a Minor Demat Account

Three rules in particular need to be followed when it comes to the Demat account opening process for minors. Let us have a look at them: 

1. Account to be Opened by a Parent/Guardian:

As easy as it may sound that now a minor can open a Demat account, the process isn’t as simple. When it comes to a minor Demat account, only the parent or guardians of the minor can open the Demat account on the minor’s behalf. 

The operation of such a Demat account also is to be managed by the parent or guardian till the minor turns 18 or 21. The provision of letting the parent of guarding operate the account helps in many ways. Parents can truly give their children a head start in terms of making them financially secure through the returns that such a Demat account will yield.

2. A Trading Account  

Seeing as minors cannot trade using a stockbroking app, despite having a minor Demat account can sometimes come as a hurdle for most.

The current Demat account does not allow minors to trade in equity as certain restrictions have been imposed on the acquisition of a minor Demat as well as a trading account. Minors cannot use a trading account to sell or buy stocks or do any kind of equity trading.

They can however use their minor demat and trading accounts to sell the equity that have received as a transfer from a family member, as a gift, or by the government. 

3. Joint ownership 

When it comes to the Demat account rules, it clearly states that minors cannot be joint owners in any Demat account.

To have a Demat account to their name, they need to open a minor Demat account with sole ownership. This Demat account, will, however, always be operated by the minor’s parents or guardians till the minor becomes an adult. 

4. KYC

The KYC or Know Your Customer process is a non-negotiable for any Demat account. It does not matter whether the Demat account belongs to an adult or whether it is a minor Demat account, the KYC process needs to be followed properly.

This is why, even as a minor, if they are looking to open a Demat and trading account, the KYC duties need to be fulfilled by both the minor and the parent or guardian. 

Conclusion

Opening a minor Demat account could truly provide a lot of benefits to the holder. Such a Demat account helps parents or guardians provide a head-start to their children when it comes to financial stability.

Of course, it needs to be addressed that a minor Demat account will be fully operated by the parent or guardian of the minor, till the minor becomes an adult.

Even with a Demat account though, minors cannot participate in the buying and selling of equities in the share market. The only way they can sell equities is if they have received the equities as a gift, a transfer from the family or as a provision by the government. 

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