On investing, Warren Buffett said that he made his first trade at the age of 11 and until then he was wasting his time. The richest investor is driving home the point that it pays highly to start early. Compounding works best with time on its side.
Unfortunately, in India, we do not teach finance as part of our school curriculum, and parents either end up teaching their children or investing on their behalf. Further, in India, a person below 18 years of age is considered a minor and is not allowed to invest by themselves.
The minor, however, is allowed to open a Demat account in their name. A Demat account is where shares of the account holder are stored.
Such an account of a minor will be operated by a guardian. Either of the parents can be a guardian or a court appointed person is eligible to be the guardian when opening a Demat account.
Opening a minor Demat account can help the parents meet the financial goals of the child, like higher education, relocation, wedding and so on.
Also, since the account is in the child’s name, it will give them an insight into the need and benefits of savings and investment from an early age. Not only will it help them become financially literate, but also understand the power of compounding.
The procedure for opening a Demat account is more or less the same as that for an adult.
The following set of documents are required:
The requisite form has to be filled by the guardian and KYC verification done for both the minor and the guardian.
Post verification, the Depository Participant will issue a client ID and Account number.
The biggest limitation for a minor is that he cannot, on his own, operate the account.
Depending on the type of account opened, there are two scenarios
In the event of the death of a guardian, the original death certificate has to be submitted to the DP.
The minor’s account will be frozen until a new guardian has been appointed.
The new guardian can resume operating the minor Demat account once KYC, KRA registration and other legal procedures have been completed.
In India, a person below 18 years of age is considered a minor and is not allowed to invest by themselves. They would thus require to open a joint account with a parent or a guardian.
The procedure requires submission of documents like PAN card details of the minor, birth proof, identity proof, address proof, and PAN card details of the guardian. These have to be submitted to the depository participant.
The biggest limitation for a minor is that he cannot operate his or hers account. A minor cannot be made a joint holder of a Demat account along with an adult and their Demat account cannot be linked to a trading account. The guardian will operate the account till the minor attains maturity, i.e. 18 years of age.
When the word MINOR is mentioned in the account, in such an instance, the existing account has to be closed and a new account opened by the minor who has now turned into an adult.
In case where the word MINOR is not mentioned, the minor who has turned into a major has to open a new account with updated information. He has to fill a new Know Your Customer (KYC) application form or details of KRA registration. Since the account is now being transferred from the guardian to the Minor, the Depository Participant will provide a copy of the rights and obligations document to the new account holder and also keep an acknowledgment of the same for record.
In the event of the death of a guardian, the original death certificate has to be submitted to the Depository Participant. The minor’s account will be frozen until a new guardian is appointed. The new guardian can resume operating the minor Demat account once KYC, KRA registration and other legal procedures have been completed.
Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.
Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.