Minor Trading Account and How to Open it

Embarking on the journey of financial education for your child is a commendable step, and opening a minor trading account in India can play a pivotal role in fostering a sense of financial responsibility. In this guide, we will delve into the intricacies of the process, exploring the steps and considerations involved in setting up a minor’s trading account. From understanding the eligibility criteria to navigating regulatory requirements, this comprehensive walkthrough aims to empower parents and guardians with the knowledge needed to initiate their child’s introduction to the world of investments.

Table of Contents

Defining a Minor

In India, a minor is legally defined as an individual below the age of 18 years.

Minors do not have the legal capacity to enter into contracts, including financial transactions. However, when it comes to trading in India, there are provisions that allow minors to have a share in investments through a guardian or a natural/legal guardian-operated minor’s trading account.
Minors themselves cannot directly trade or own a trading account, but a parent or legal guardian can open a minor’s trading account on their behalf.
The guardian manages and operates the account until the minor reaches the age of majority.
This setup enables parents or guardians to introduce their children to the basics of investing and financial planning, fostering financial literacy from an early age.

Need for a Minor Trading Account

Opening a trading account as a parent can provide you with numerous advantages.

Planning Child’s Future

Opening a trading account as a parent offers several benefits, especially in planning for your child’s future. Parents often face various expenses, with education being a significant concern. In addition to educational costs, unexpected expenses such as medical bills may arise at any point in their lives.

Goal-Oriented Investing

The account provides an excellent platform for parents to plan and invest in specific goals in their child’s life, such as education or other significant milestones. This goal-oriented approach helps in creating a structured and purposeful investment strategy.

Opening a Minor Trading Account

The process of opening trading accounts for minors in India is very simple. Compared to a normal Demat account the number of documents required to open a minor trading account are:

PAN (Permanent Account Number) card of the minor
PAN card of the guardian
Birth certificate of a minor
Identity proof, preferably an Aadhaar card linked to the PAN card of the minor
Address proof of the minor’s identity

Along with this both the guardian and the minor would have to go through the KYC (Know Your Customer) process, which could be done online via eKYC or offline.

Trading Account Changes When Minor Turns 18

Close the Minor Account

Once a minor crosses the age of 18, there are two options with the minor trading account.
In this process, you choose to close your current trading and Demat accounts and open a completely new trading account. Once the account opening process is done, holdings from the minor account are transferred to the major trading account and the Demat account can be closed.

Convert the Minor Account

In this process. your current minor account isn’t closed or deleted. There is a small procedure and certain documents that you’d have to fill out for your minor account to be converted to a major Demat account. The guardian details are removed, and the now 18+ adult gets complete control of the account.

Restrictions on a Minor Trading Account

A minor Demat account has certain restrictions when compared to a regular Demat account. Here there are a few restrictions that a minor account has.

It can not be a joint account.
The minor will not be able to operate the account until they are 18 years of age. The legal guardian is liable to operate the account until then.
Only equity can be bought and sold through this account.

Here is an accurate list of segments in which a minor’s account cannot be traded.

Equity intraday
Equity futures
Equity options
Currency derivative trading

A minor’s account should generally be used for investment or gifting purposes and not for trading. Minor accounts are not taxed, which is both an advantage and a disadvantage. Instead, the gains from them are included in the income of the legal guardian.

Protocols for Minor Trading Account in the Event of Guardian’s Demise

The death of a guardian is a very unfortunate incident. This could lead to complications with the minor account. Here are the steps you would have to follow to open a trading account for minors in India.

Submit the original or a copy of the death certificate of the guardian.
Get the document notarised properly or have it attested by a gazetted officer.
The death certificate can be downloaded from the online Government portal carrying a digital/facsimile signature to the depository participant (DP).
Once the downloaded certificate is submitted it will be verified by the DP with the respective registrar.
Upon verification, the minor’s account will be frozen until the new guardian completes the next steps.
The new guardian must provide all the necessary details along with the KYC (Know Your Customer) form.
If the new guardian is appointed by the court, the original or copy of the court order must be submitted along with the KYC form.
The copy of the court order must be notarised or attested by a gazetted officer.
Once the guardian is approved by the DP, ensure to collect a copy of the Rights and Obligations document.
A new nomination form must be filled out and submitted by the new guardian for the minor’s account.
Upon the completion of the whole process and approval, the new guardian details must be updated with the depository.
The signature of the deceased guardian must be replaced by a new guardian for them to access the account.

Conclusion

Opening a minor trading account in India is a strategic and empowering step for parents and guardians looking to impart financial education and plan for their child’s future. This guide has highlighted the essential steps and considerations involved in the process, from understanding eligibility criteria to navigating regulatory requirements. By initiating a minor’s introduction to the world of investments, this endeavour not only lays the foundation for financial literacy but also provides a practical means to instil responsible financial habits. The minor trading account stands as a powerful tool for goal-oriented investing, teaching valuable lessons about assets, liabilities, and stocks, ultimately preparing the younger generation for a financially informed future.

Frequently Asked Questions (FAQs)

Which brokers or DP provide minor account opening facilities in India?

Several DPs, such as Share India with over 28 years of experience, provide facilities for minor account openings. It’s advisable to conduct thorough research to maximise the utilisation of additional features offered by the chosen stockbroker.

Can a minor account be opened without a PAN card?

A PAN card is mandatory to open any kind of Demat or trading account. A minor must have a minor PAN card, and the guardian must have their own PAN card to open the minor account.

Can one have a joint trading account with a minor?

It’s not possible for a minor to have a joint Demat or trading account. Instead, a minor can open their own account to hold financial assets.

Is it possible for an individual to be the guardian for more than one minor account?

Yes, an individual can serve as the guardian for multiple minors. The key requirement is that all the minors involved should be the children of the designated guardian, establishing a familial relationship across all the minor accounts.

Minor Trading Account and How to Open it | Share India (2024)