There are many benefits associated with opening a Demat account for minors (under 18), not only for the minor but also for the guardian. Compared to the regular Demat accounts, the transfer formalities when using a Demat account for minors is less time-consuming. Besides, it also provides an ideal platform for the financial planning of a child at an early stage. Many people are using this account to invest in mutual funds, stocks, ETFs etc. for the long term in order to financially safeguard the future of their child.
Let us take a look at some basic information related to the Demat account for minors.
Procedure for opening a Demat account for a minor
The account opening procedure is rather simple. The guardian needs to provide the required documents such as the proof of identity, proof of address, photocopy for the proof of age, and photographs to the concerned Depository Participant.
The DP then verifies the documents and captures the PAN details of the minor in the DPM system post verification.
Upon successful submission and verification of the submitted documents, a Demat account for minor will be created.
Restrictions of a Minor Demat Account
When compared to a regular Demat account, a Minor Demat account has certain limitations. They are as follows:
- Not permitted in certain segments: Any person operating a Minor account is not allowed to trade in segments like equity intraday, currency derivatives (F&O), and equity derivative trading (F&O)
- Joint holder: A minor cannot be a part of a joint Demat account
- Transaction: Only delivery shares can be purchased or sold when using this type of account
- Trading account: A Demat account for minors cannot be linked to a Trading account
Procedure to be followed once a minor turns major
The following procedure should be followed if the word ‘minor’ is not present in the "Account Holder's name":
- The account holder shall submit new KYC application form or details of KRA registration
- The account holder shall submit a new account opening form duly complete in all respects
- The DP shall provide a copy of the Rights and Obligations document to the account holder and shall keep an acknowledgment of the same on record
- The guardian’s details shall be deleted, and the guardian’s signature shall be replaced by the account holder’s signature
If the "minor" word was present at the time of account opening, then the existing account has to be closed, and a new account should be opened.
Procedure to be followed in case of death of guardian of existing Minor account holder
In the case of death of the guardian of an existing minor account holder, the following procedure shall be followed:
- Original Death Certificate of the deceased Guardian or a copy of the same, duly notarized or attested by a Gazetted Officer or Death certificate downloaded from the online portal of Government carrying digital/facsimile signature of the issuing authority may be submitted to the DP. In case death certificate is downloaded from the online portal of Government, the authorised official of the DP should verify the details from the Government's website or from the office of the concerned registrar (birth/death) and keep a record of the same with his signature and stamp of DP
- The minor's account shall be frozen under the appropriate reason code till the new guardian has completed all formalities.
- Original or copy of the Court Order (duly notarized or attested by a Gazetted Officer), if the new guardian has been appointed by the Court. Chapter 2 Account Opening CDSL - DP Operating Instructions – June 2018 Page 5 of 25
- The new guardian shall submit a new account opening form duly complete in all respects along with KYC application form or details of KRA registration.
- DP has to provide a copy of Rights and Obligations document to the new guardian and keep an acknowledgement of the same on record
- The new guardian shall submit a fresh Nomination Form for the minor's account.
- After verification of the AOF and documentation, details of the Guardian of the Minor account holder shall be suitably modified in the CDSL system
- The signature of the deceased guardian shall be deleted, and the signature of the new guardian shall be recorded in the CDSL system
- POA documents/details, if any, recorded with the signature of the deceased guardian shall be deleted
FAQ related to Demat accounts for minors
Who qualifies as a minor?
Any person under the age of 18 is considered a minor in India, and a Demat account can be opened in his/her name.
Who is eligible to be a guardian?
Only either of the parents or a court-appointed guardian is eligible to be the guardian of a child when opening a Demat account.
Who is responsible for filling the Demat account opening form?
Demat account opening forms must duly be filled and signed by the guardian along with two separate KYC forms (for the child and the guardian).
What are the documents required while opening a Demat account for a minor?
The PAN details of the guardian, as well as the child, are mandatory, and so is the proof of birth of the minor. Additionally, proof of identity and proof of address of the minors is required.
It is the responsibility of the guardian to fill and provide all the documents necessary for account opening.
Who should operate the account?
The operation of the account has to be carried out by legal guardian.