Investors can purchase, hold, and sell shares in their dematerialised form using a Demat account. A Demat account is for your stocks and other equity-related investments, just like a bank account is for your money. According to the Securities and Exchange Board of India, opening a Demat account is required if you want to trade shares. Using a Demat account streamlines transactions lowers costs, and saves time and money when investing in shares.
Additionally, the accessibility and handling ease of share certificates increase as they are converted to electronic format. The Indian Contracts Act of 1872 prohibits minors from signing or participating in financial agreements. However, under the Companies Act 2013, any Indian citizen can own shares in publicly traded companies regardless of age. As a result, it is acceptable to open a Demat account online in India.
Even though a minor technically owns the Demat account, the minor cannot buy or sell shares independently. They will require a guardian to serve as the principal authorised to gift the shares to the minor’s Demat account. Until the minor turns 18 years old, the parent or legal guardian of the minor has complete authority over all matters relating to the opening, closing, and management of a minor Demat account.
Although there is no required minimum age to open a minor Demat account, there are several steps to follow:
- The guardian must complete the standard forms for opening a Demat account with a depository participant or a broker such as ICICIdirect. It may be necessary to fill out two KYC forms, one for the guardian and another for the minor.
- The guardian oversees all required documentation, including address, identity, age proof, and PAN information for both the guardian and the minor.
- Even though the minor’s information is contained in the Demat account, the guardian will sign all documents on the minor’s behalf.
- After receiving all the necessary documentation and information, the Depository Participant will scrutinise and verify the details. A Demat account for the minor is opened after the DP successfully verifies.
Even though there is no minimum age requirement to open or use a Demat account for trading, a minor Demat account has some restrictions. First, a minor cannot manage their account. The stockbroker needs documentation from the parent or legal guardian to open one. Second, a minor may only trade equity delivery using their Demat account. Equity intraday trading, as well as equity or currency derivatives, are prohibited for minors.
Thirdly, an online trading account cannot be connected to a minor’s Demat account. When a minor becomes a major, the existing Demat account must be closed because it is no longer functional. A new account opening form and a KYC must be submitted to open a new account for the individual. The application must include all pertinent documentation, including proof of identity, proof of address, and bank account information (a bank account in the applicant’s name is required).