Investing used to be a thing for people who had completed their education and wanted to start earning good. Hence, saving money and investing the extra cash to get a greater return down the line made them feel financially safe and secure. But today, education with master’s and loans takes quite a toll on the road to financial freedom. A wise guardian can start investing for the minor till they turn adult, so they can have a great snowball effect in returns.
The question here is, can a minor open a free Demat account? If you do not know the answer to this then let us tell you that yes, they can. On the contrary, believe that you need to be 18 years old to open a Demat account.
While a Demat account can be opened for a minor but they cannot enter into a contract with the broker for selling and investing securities as per the Indian Contracts Act 1872. Still, a Demat account can be opened in the name of a minor, and the Demat account can be operated by the guardian till the minor turns 18. The guardian can be biological or appointed by the court.
Minor Demat Account Opening Procedure
The Demat account opening procedure would remain the same as any normal Demat account. These are the common steps in opening a minor Demat account.
Step 1: Find a stockbroker with a facility of minor Demat account opening, even though the Companies Act 2013 states that any Indian citizen can become a shareholder of a publicly listed company, irrespective of age. Some stock brokers might not facilitate the feature, and you might have to go through the extra trouble. Hence look for one who already provides minor Demat accounts.
Step 2: Fill out the Minor Demat account form online or office accordingly. After that, the stockbroker will ask you to submit a few documents. The documents required for the Demat account will be as follows:
- Pan Card
- Proof of identity (Aadhaar Card)
- Proof of Address (Residencial Bills etc.)
- Proof of Bank Account (Passbook, cheque etc.)
All these documents from minors and guardians would be asked for and verified. Few more documents, such as birth certificates, etc., can also be requested from the stockbroker, but the above documents are most important.
Step 3: After the documents are verified, A dual KYC in which both minor and guardian have to go through a KYC process to verify the person, and after the completion of KYC, the process will move further.
Step 4: After KYC, the stockbroker will open your Demat account with the Central Depository, and you will be provided with a Customer ID and Minor Demat Account.
The Demat account can be easily used and operated by the guardian. The stockbroker will notify, and the account can be transferred easily to the Minor when they turn 18. All the updated documents have to be provided again, and then the Minor Demat account can be converted into a standard Demat account, and they can enjoy significant returns.
Investing gives you a fantastic return when you start early. Then why not give a headstart to your little one. They can also be beneficial if ownership of shares falls on the minor through family or by the implementation of the government. However, the minor can not use the Demat account to trade equity or invest in securities per SEBI’s rule. The Minor Demat account should be used strictly by the guardian, and any investment done will be accounted for as a gift or donation to the minor.