Steps and Rules Associated with Opening a Minor Demat Account
Stock market investment helps investors to generate additional income. With various types of mutual funds, stocks, and other investment options, more and more investors are considering stock market investment in order to generate substantial returns.
Apart from adults, even minors below the age of 18 are slowly becoming aware of the importance of financial independence and looking for ways to earn money through stock market investment. Due to the strict rules and regulations prescribed by the regulatory bodies, opening and operating a demat account by a minor is strictly prohibited. However, a minor demat account can be opened by his or her legal guardian like a father or mother.
Also, the legal guardian is responsible for opening as well as management of the minor demat account. The minor demat account can be used for the sale of various securities obtained through investment in IPO, inheritance, and other ways like gifts and transfers from family members.
Following is the step-by-step process the legal guardians must follow in order to open a demat account:
1.Selection of a Depository Participant or DP
A depository participant or DP serves as an intermediary who helps in opening a demat account. The legal guardians must open a demat account by making a selection between NSDL or CDSL. However careful analysis is essential for the selection of the right depository participant by understanding various aspects like maintenance charges, brokerage fees, and ease of investment through various trading platforms.
2. Submission of necessary documents
The legal guardian must submit various documents like birth certificates, PAN cards, and identification proofs of the minors. A recent passport-size photograph, identity proof, and PAN card of the legal guardian are essential as well. A signed declaration must be submitted as well which serves as proof of the relationship between the legal guardian and the minor with the depository participant.
3. Completion of the KYC process
Various identification proofs passport sized photographs and address proofs have to be submitted in order to complete the KYC process for opening a minor demat account. In-person or video call-based verification is essential as well.
4. Account Activation
After completing all the necessary steps, the legal guardians receive access to a unique demat account number which they can use for account activation.
Rules for Opening a Minor Demat Account
There are various rules and regulations for opening a minor demat account.
1. Restriction on trading in futures and options
The legal guardians are responsible for opening and managing the mind a demat account can invest in stocks and other securities. However, they cannot indulge in futures and options as a form of investment. Only delivery-based trading is allowed through a minor demat account.
2. Age restriction
After attaining the age of 18, the legal guardians are responsible for handing over complete control of the minor demat account. Conversion from a minor to a regular demat account becomes a necessity.
3. KYC completion and investment limitation
Legal guardians must complete KYC compliance regulations and investment rules. The guardians must make informed investment decisions and opt for low-risk investments with a long-term view in mind.
Conclusion
The question ‘can a minor open a demat account’ looms among many. The thing is it can be opened in his or her name by their legal guardian only. A minor cannot use a minor demat account. However, opening a minor demat account is the first step towards teaching financial literacy and responsible investments.
