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Secure Your Child’s Future by Opening a Minor Demat Account.

Trading

CA Shefali Mundra

21 Oct, 2022
7 mins read

Are you looking for avenues to secure your child’s future financially? As a parent, are you interested in investing in equities?

Embarking into the phase of parenthood calls for a different set of responsibilities. You tend to invest in diversified fields like insurance or education to create a safe and secure future for your child. Likewise, as investments in education contribute to a child’s overall growth and development, early investments in the stock market lay a solid foundation for wealth creation.

Interestingly, the proliferation of digitization has transformed investing space by leaps and bounds. This change has streamlined the pathway to the world of investing, and investing in stocks and mutual funds can be done online instantly. Parents interested in investing for their children can start by opening a Minor Demat Account.

Here’s a list of FAQs to help you make an informed decision about opening a Minor Demat Account.

Who Are Eligible to Open a Minor Demat Account in India?

As per the Companies Act 2013, all the residents of India can hold shares of a publicly listed company, irrespective of their age. It is legal to open a Minor Demat Account in India, but the account can be opened only by the parents of the minor (i.e., the Father and, in his absence mother of the minor child) or legal guardian. As a parent or legal guardian, you can transfer the securities from your account to your child’s account as a Gift/Donation or transfer between family members.

You can now open a Minor Demat Account with Fyers. Click here to access the step-by-step process to open a minor account at FYERS.

What Are the Restrictions of a Minor Demat Account?

Opening a Minor Demat Account in India is not restricted by age but has certain other limitations attached to it. Firstly, it can only be operated by parents or legal guardians until the minor child attains the age of 18. Secondly, a minor child's parents or legal guardian cannot buy equity shares or mutual funds through a Minor Demat Account. However, they can sell the shares and mutual funds received through gift, donation, inheritance, IPO, corporate actions, off-market transfers between family members, or via implementation of Government, Regulatory Directions or Orders.

Thirdly, as per the SEBI guidelines, the minor child's parents or legal guardian cannot trade in Equity Intraday, Currency Derivatives, Equity Derivatives, and Commodity Derivatives.

Lastly, only Indian citizens are allowed to open a Minor Demat Account in India as it is mandatory to submit address proof and PAN for opening a minor account.    

What Are the Benefits of Opening a Minor Demat Account?

Minor Demat Account is beneficial for parents as well as children.

1. Effective Financial Planning  

Investment in stocks and mutual funds offers better returns compared to Fixed Deposits (FDs). Opening a Minor Demat account allows you to plan your children’s finances effectively. The funds accumulated can enable you to meet long-term goals like children’s higher education, marriage, financial support to start a business, and others.

2. Encourages Financial Literacy.

Having a Demat account in your child’s name allows them to explore the world of financial independence. Opening a Minor Demat Account will unlock their capability to understand the basics of savings and investments early in life. Growing up, they can also involve themselves in understanding the nitty-gritty of the stock market.

What Happens to the Minor Demat Account When a Minor Turns Major?

When the minor turns 18, the minor child in possession of a Demat account has the option to convert the minor account to a major account. The minor child should re-submit the KYC details along with the e-signing process to the depository participant.

Upon receiving the new KYC details (Name, Email id, Contact No., Photograph, Bank proof) and successful verification, the depository participant, will convert the account to major holding status. Now, the client may also opt for other segments like Equity Derivatives, Commodity Derivatives, Equity Intraday, and Currency Derivatives that were restricted earlier.

Why Should You Choose to Invest in Equities Over FD (Fixed Deposits)?

Analysis of the historical data clearly shows that investments in stock markets provide better returns than fixed deposits. Additionally, funds invested in stock markets are free from lock-in periods and are capable of being withdrawn easily. Grab the benefit of diversification, which is almost impossible by investing in fixed deposits.

For instance, if you would have invested ₹1,00,000 in Bank FD, offering an interest rate of 7% for the last five years. The estimated returns on the same would have been approximately 41% amounting to ₹41,000 (Approx). Alternatively, if you had invested ₹1,00,000 in Bajaj Finance Ltd,  you would have received a return of approximately 300% over the last 5 years which amounts to ₹4,00,000(approx).

Conclusion:

Financial literacy should be a top-notch priority for parents, enabling their children to achieve their financial goals.

Now that you know there is no age barrier to investing in stock markets, start immediately by opening a minor Demat account. Investing through your child’s minor account is the best way to plan their finances and build wealth in the long term.

Carve out a golden future for your children, and lead a stress-free life ahead by investing with FYERS.

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