Setting Up a Demat Account for Minors: A Parent’s Guide to Early Investing

According to the Indian Majority Act of 1875 a person who is younger than eighteen is considered a minor. 

What Happens When a Minor Makes Their First Investment?

You cant just put a childs name as the account holder and make an investment for them. Whenever possible you must adhere to certain operating procedures for all investments made in the minor childs name in order to safeguard their interests. 

The following things need to be remembered.

• A designated Guardian must oversee all minor investments since they are not thought to be capable of making wise decisions regarding their accounts.
•  A court-appointed guardian may be necessary in certain situations but typically a minor’s parents serve as their natural guardians. 
• The guardian will handle all investment payments and receipts (from their bank account).

After the minor child reaches adulthood the following procedure must be completed. 

• Upon becoming a major the child’s PAN and KYC will have to be submitted. 
• Is it possible for minors to invest in stocks in India?Indeed. 
• Although a guardian must manage the bank accounts, trading accounts and Free Demat account a minor may invest in the stock market. 

In addition to the above-discussed procedural steps the following considerations need to be made. 

Can Minors Invest in Stocks in India? 

Yes, minors can invest in the stock market, but their guardian must operate their Demat, trading, and bank accounts.

In addition to the necessary procedures, here are some key points to remember:

1. Both the minor and their guardian(s) must provide their PAN card to open the minor’s Demat and trading accounts.
2. Minors are permitted to trade only in Equity Delivery, meaning they cannot participate in Equity Intraday, Equity Derivatives (F&O), or Currency Derivatives.
3. When a minor reaches adulthood, the existing account can either be closed and a new one opened in the individual’s name, or the existing account can be continued with proper procedures. In either case, the now-adult account holder needs to establish a new agreement with the Depository Participant (DP).
4. If physical shares are jointly held with a minor, they must be transferred to the minor, who should then move them into their Demat account.
5. It is possible to open a combined 3-in-1 account (Bank + Trading + Demat) in the minor’s name.

 Does Mutual Fund Investing Allow Minors?

• Parents frequently ask Can I start SIP for a minor?. Yes under the supervision of a guardian demat account for minors are permitted to invest in mutual funds. 
• In India a person must be at least eighteen years old to invest in mutual funds on their account.
• India does not have a maximum age requirement for mutual fund investments.
• Once the minor reaches 18 years of age, he or she can handle the account on their own without any guardians support.

Other Options for Investing in Minor Names

1. Gold

Sovereign Gold Bonds (SGBs) are available for purchase by minors. Nonetheless a guardian is required for the applicant. Also the guardian must submit the SGB application form along with a copy of his PAN. Moreover a minor can sign up for digital gold on the GoldRush website. 

Furthermore after completing the registration process and providing documentation such as proof of identity address and passport an individual can open a metal account with Stock Holding Corporation. Today’s technological developments even allow for the possibility of investing in digital gold. 

2. Real Estate

If a parent signs the contract as the minors natural or legal guardian they can jointly purchase real estate in the minors name. 

The PPF stands for Public Provident Fund

A PPF account can be opened in a childs name by a person acting in the role of guardian. An annual maximum of INR 1. 5 lakhs can be invested in a PPF. The minor and the guardian have a combined limit of this amount. You can apply to change your status from minor to major when you turn eighteen. If the minors PPF account needs to be withdrawn the guardian must state that the funds are for the child. 

Sukanya Samriddhi Account

Under the Sukanya Samriddhi Yojana savings plan for two girls, parents are permitted to maintain two accounts at the same time. If a parent is not present a legal guardian may open the account. 

As the plan reaches maturity the recipient i. e. E. The girl child receives the compensation. When the account holder turns 21 the Sukanya Samriddhi account matures. However she can only withdraw up to 50% of the account balance to pay for her further education.