You wish your parents had bought you some blue-chip stock in the 90s. That is why most parents are excited to open a minor demat account for their child. They want to create wealth & teach them the art of compounding. In the following ten to twenty years, you may even start investing in equities with a long-term perspective and let growth take control. But unlike a regular trading account, there are certain requirements & mistakes to avoid while opening a minor demat account.
Let us discuss the requirements & common mistakes in detail.
Why parents open Demat accounts for minors
Parents open demat accounts for minors to ensure that they have some money when they become adults. Instead of allowing the child to save money in a piggy bank or an FD, investing the money in the stock market can create substantial wealth. Also, since a minor cannot sign contracts or trade, a parent can act as a guardian. Stocks and joint funds may be acquired by parents on behalf of their children. When the child becomes an adult, they can enjoy the proceeds of their investment.
Key requirements for minor Demat accounts
Before you start exploring the mobile app, there are some documents that you must gather. The KYC norms are a bit stricter for a minor demat account since the money is for the child.
Documents Required:
- PAN card of the minor: It is mandatory to provide the PAN details of the minor while opening a demat account
- Proof of Age: The guardian has to submit a birth certificate or mark sheet to prove the age of the minor
- Proof of Identity & Address: Parents must submit their KYC documents such as PAN, Aadhaar, & address proof
- Bank Account Details: The guardian needs to have a bank account in the name of the minor (either joint or sole account)
- Signature: The guardian has to sign on behalf of the minor
Common Mistakes while opening minor demat account
Most parents make these errors while opening a minor demat account, which creates issues at the time of maturity
- They choose a broker on commission: While selecting a brokerage platform, most parents are tempted by a 0% AMC. Instead, they should look for the best brokerage firm in India that can facilitate the closure of a minor account when the child reaches 18 years of age. They should also consider customer service as poor customer service can cause issues while operating the demat account
- They forget that the account will mature at 18: A minor demat account freezes when the child reaches 18 years of age. The guardian has to ensure that they move all the shares from the minor account to their account. Parents should inform the child about the transition to avoid any disputes
- They use the account to trade in shares: A minor can only buy shares through a demat account. They cannot perform intraday or F&O trading since they are not allowed to short sell or take margin money
- They provide the wrong signature: The guardian’s signature on the demat account has to match with the signature on their PAN and bank account. If the signature is erroneous, the demat account will be closed
- They fail to nominate in the demat account: Like any other demat account, a minor account also requires a nominee. Parents usually forget to nominate, which creates issues in the future
Conclusion
Opening a minor demat account enables a child to learn about the art of investing and compounding. It helps them build wealth over a long period of time. However, there are a few mistakes that parents should avoid while opening a minor demat account. Double-check all the documents and choose a brokerage platform carefully. Also, make sure that you transfer all shares to the child’s account once they reach 18 years of age
