An Overview of Minor Demat and Trading Account

With the economy thriving, investing in the stock market equity is one of the best approaches to save money for future prospects. However, to invest in stocks or shares, one must open a Demat account to carry out the transactions.

Though the Demat and Trading accounts are similar, there is a difference in their functions, and one needs to open an account that carries out both roles.

What is a Demat and Trading Account?

Dematerialization Account, best known as Demat Account, allows the account holder to trade in securities bonds, share and hold them safely. In a digitalization era, the Demat account converts the physical bonds and shares into electronic format. As a result, the holder can track their investment online anytime, accessible through online applications.

A trading account is utilized to carry share trades of the company, which is listed on the stock exchange. One needs a Trading account to carry out the buy and sell of the securities. While one sells their shares, the amount will be debited from the Demat account. 

What are the documents requirements to open a Demat account?

The basic requirement to open a Demat account in India are:

• Identity Proof (any-one): Pan Card, Aadhar Card, Driving Licence, Voters ID, Telephone Bill, Electricity Bill, Cylinder Connection bill, or any document issued by the Indian government.

• Address Proof (any-one): Voters Id, Passport, Ration Card, Bank Account passbook/statement, or any document issued by the Indian government.

However, to make things quick, PAN card (as identity proof) and Aadhar Card (as address proof) copies are the two documents that are widely accepted as a KYC (Know Your Customer) Document.

Can a minor open a Demat and Trading Account?

A minor in India is an individual whose age is under 18 years old. Similar to a minor bank account, a minor Demat account exists. The account is opened by a minor legal guardian or the parents.

Investment is one kind of wealth creation. With the advanced technological innovations and inflation rising, preparing for the child's future from the beginning helps to solve major financial issues and allows them to have a bright future. In addition, the stock market valuation goes up; therefore, it is the right time to invest in the minor's name.

The Demat account helps the minor to have financial independence. Then, when they grow to be a mature adult, they will be able to utilize the invested money for their higher education, start-up business, buy properties, re-invest the money to grow more, and many more things. 

What are the rules regarding the minor Demat and Trading Account?

1. Form, Documents, and Account Opening

• The account form-filling and signature need to be completed by the legal guidance or parents of the minor. Some companies might ask for a minor signature (if they know how to sign) or their thumbprint.
• The parents or the legal guardian need to submit their documentation — proof of identification and address in addition to the minor birth certificate, Aadhar card or passport copy, and school id.
• Passport size photographs or as per the company rules of the minor and the parents or legal guardians.
• The account will have the facility of 3-in-1 (Saving + Demat + Trading Account) in the minor’s name.

2. Account Operation of Minor

While the legal guardians or the parents can open a Demat and trading account in the name of the minor, specific rules and regulations, need to be strictly followed. 

The parents or legal guardians will handle the account until the minor completes 18 years, and till then, the account cannot be used to purchase or sell any equity shares, stocks and take part in intraday trading services. Therefore, one can only use the minor account as transferring the equity from family members. 

The minor Demat and trading account is utilized for the future investment for the child.

3. Account Operation after minor turns adult

When the child turns 18, the minor Demat and trading account will be inoperative and need to open a new account. The stocks and equity holdings in the minor's account will be transferred directly to the new Demat account, and they require to sign the new agreement. 

Which broker in India allows the opening of Demat and trading account in the name of a minor?

1. Zerodha

Zerodha is one of the leading stockbroker companies in India, and it offers various trading for the stock market. Zerodha charges INR 300 as a minor account annual maintenance charge.

2. Sharekhan

Sharekhan is one of India's oldest stock market brokers, offering the most extensive stocks of various companies. It is free to pen a minor Demat account with Sharekhan, but it charges INR 400 for the account's annual maintenance charge per year.

3. IIFL — India Infoline Limited

IIFL is considered one of the prominent in the financial market offers various benefits in minor Demat accounts. IIFL doesn't charge anything to open a minor Demat account, provides a free annual maintenance charge for the first year, and levies INR 450 for the second year onwards.

4. 5Paisa

5Paisa was once part of IIFL, and since 2017 it has been operating as an independent discounted online stock market broker. 5Paisa has gained immense popularity since then for its services and minimal charges. 

5Paisa offers free account opening services for minors, and the annual maintenance charge of accounts is varies depending upon the value of the holdings.

• Less than INR 50,000 holdings: zero charges
• INR 50,000 — INR 2,00,000 holdings: INR 8 
• More than INR 2,00,000 holdings: INR 25

5. Angel One

Angel One is India's most reliable full-service stock market broker, currently offering minor Demat accounts free of charge and levy INR 450 as an annual maintenance charge for the account.

Along with the broker companies, ICICI, SBI, and HDFC banks also offer minor Demat account opening with minimal documentation and fast services.

Conclusion:

A Demat and trading account in the name of minors will encourage them to learn the significance of investment from an early age. As the child reaches a certain age where they begin to understand investment fundamentals, the parents or legal guardians need to explain how the capital grows and the values of wealth in the future. Thus, learning at a young age promotes a good sense of investment in the child's future.

Though it is easy to handle the minor Demat account, parents or legal guardians need to ensure that they should be appointed trusted parties to take care of the account as the value of the investment can be in a large amount with the passing years.