How To Open a Demat Account in Minor’s Name

Individual investors, joint investors, corporations, and non-resident Indians (NRIs) can all open a Demat account. It can also be opened in a minor’s name. Let’s take a look at the steps involved in opening a Minor’s Demat account, as well as the paperwork required.

The Indian Contracts Act,1872 lays down that minors cannot be a party to any contract or agreement. But, the Companies Act, 2013 allows any person of any age to hold shares of a company. Therefore, a minor Demat account can be opened in the name of the minor but he or she cannot actively buy or sell shares themselves. The shares have to be transferred to the minor as gifts by a guardian. Hence, only the parents or a legal guardian can open a Demat account in the name of the minor child. The natural or legal guardian has complete authority regarding opening, managing, and closing the Demat account of the minor until the child attains 18 years of age.

Following are some of the documents to be produced at the time of opening account of the minor:

Account Opening Form: A properly completed Demat account opening form that includes all required information for both the minor and the guardian. The account opening form requires two distinct KYC forms, one for the guardian and the other for the juvenile. The guardian is responsible for all signatures on account opening and KYC forms.
Proof of Identity:

Both the guardian and the minor must produce their PAN cards.
For both the guardian and the juvenile, any other relevant POI document, such as an Aadhar Card, Passport, Voting Card, or Driver’s License, must be submitted.

Proof of Address: Aadhar Card, Ration Card, Registered Lease or Sale Agreement of Residence, Utility Bills, and other relevant POA documents must be submitted.
Birth Certificate.
The guardian’s bank account information is required if the minor is a joint account holder. The minor doesn’t need to have his or her bank account.
In the instance of a legal guardian, the court order appointing the person as the minor’s guardian.

Note:

It is vital to understand that a minor Demat account can neither be opened as a joint account.
A parent can be the guardian of all of his or her children’s Demat accounts.
The earnings produced through the Demat account have no tax repercussions for the minor. The minor’s earnings are added to either the parent’s or guardian’s earnings (whichever is higher).
If a minor’s Demat account’s guardian dies, the account is labeled frozen, and all transactions are halted until a new guardian submits a legally completed new KYC form together with the dead guardian’s original death certificate. If a legal guardian is appointed, a copy of the court order should also be presented.

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What Are the Restrictions of a Minor’s Demat Account?

The primary constraint of a small Demat account is that

It can only be used to trade shares. Through this account, the guardian can only trade delivery shares.
Trading in intraday equity, equity derivatives, currency derivatives, and other financial instruments is not permitted for a minor’s Demat account.
The minor’s account cannot be converted into a joint account. Minors cannot be a part of any joint Demat accounts.

What Is the Procedure to Be Followed Once the Minor Turns Major?

Once, the minor turns major,

The existing account gets deactivated.
To open a new account for the person, a new account opening form must be filed together with a KYC. All essential documentation must be submitted for the first time.
The guardian’s information and a signature will be removed, and all documents will require the applicant’s signature.
All existing shares will be transferred to the new Demat account. Because the applicant is now a major, he will be subjected to the applicable tax implications.