A minor is someone who is younger than 18 years. Minors can not carry out trading activities. Investing is an extremely important life skill,and it is beneficial to start investing early. Investing is a major part of planning your finances and building a corpus to use for various needs and purposes. The earlier one starts trading, the better it is to understand the nuances of trading. Although children and minors cannot begin trading right away, they have opened and maintained a demat account.
A minor is someone who is younger than 18 years. Trading accounts for minors in India is possible, although they aren’t permitted to carry out any trading activities on their own. A minor trading account is a great way for minors to start early and understand how investing works.
Table of Content
Why to open a Minor Trading Account?
Opening a trading account as a parent can provide you with numerous advantages.
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Planning your child’s future
Planning your child’s future is a very good idea. As a parent, you’d have to worry about various expenses for your child. The biggest expenses you would incur would be educational. There are other additional expenses that could come up at any time in their lives like medical expenses.
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Financial Literacy
Financial literacy is an important thing to learn as it benefits every individual. Understanding the intricacies of finances will ensure you know about saving and various ways to build up wealth.
Minor Account Opening Process and Document requirement
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:
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PAN (Permanent Account Number) card of the minor
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PAN card of the guardian
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Birth certificate of a minor
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Identity proof preferably an Aadhaar card linked to the PAN card of the minor
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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.
When the Minor reaches 18 years of Age
Once a minor crosses the age of 18, there are two options with the minor trading account.
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Close the Minor 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 and holdings from the minor account are transferred to the major trading account and demat account can be closed.
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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.
What are the Benefits of a Minor trading Account?
A trading account for minors in India is beneficial to instill financial discipline in India. It provides a great platform to plan and invest for certain goals in the child's life. It provides the perfect segregation for parents to invest for their kids and not use those funds for their own benefits. It’s a great example of goal oriented investing. The minor trading account can be the best stepping stone to teach them about assets, liabilities, and stocks enhancing their abilities to make their own financial decisions.
Restrictions of 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.
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It can not be a joint account.
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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.
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Only equity can be bought and sold through this account.
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Here is an accurate list of segments in which a minor's account cannot be traded.
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Equity Intraday
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Equity Futures
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Equity Options
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Currency Derivative Trading
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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.
In Case Of The Guardian’s Death
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.
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Submit the original or a copy of the death certificate of the guardian.
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Get the document notarized 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).
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If a downloaded certificate is submitted then it will be verified by the DP with the respective registrar.
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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.
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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 notarized or attested by a Gazetted Officer.
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Once the guardian is approved by the DP, ensure to collect a copy of the Rights and Obligations document.
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A new nomination form must be filled out and submitted by the new guardian for the minor’s account.
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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. Test your trading strategies and develop your skills in a risk-free environment with our demo share trading account.
Conclusion
I hope this article answers the question ‘can minors open trading accounts?‘ Although minors can not trade on their own, their legal guardian can buy securities for them. It’s a great way to build wealth for minors that can be useful to them in the future. As a parent one must ensure to always have your children covered no matter what the situation.
