Teaching your children about money is not easy. But it is your responsibility as a parent, and an early start could pay off. How do you begin the journey towards raising a child who is financially fit? You could gift your child a demat account. Encourage them to become familiar with the different avenues for investment. Help them acquire the tools to build a secure financial future.
You may have questions about how to open demat account for children. As per the rules, minors (those aged under 18 years) cannot hold a demat account independently. But that’s where you come in.
How to open demat account for kids
If you wish to open a demat account for a minor child, first look for a depository participant (DP) that provides such accounts. Not all brokers or sub-brokers do. While you are shopping around, give priority to DPs like Kotak Securities which offer a range of educational and research materials on their platforms. This could support your child’s financial journey.
A demat account for minors comes with certain restrictions. The child cannot hold the account independently and joint holders are not permitted. In this case, the parent or legal guardian has to open the account and operate it on behalf of the minor. Once the child turns 18, they can complete the necessary formalities and take over the account.
Note also that the account can only be used for delivery-based trading. Day trading and derivatives trading, for example, are not permitted.
The process of opening a demat account for a minor is simple enough. But the documentation needs are slightly different than for standard demat accounts. Here’s what you need to furnish:
- Account opening form, duly filled in, containing details of both minor and guardian
- Know-Your-Customer (KYC) forms, duly filled in, for both minor and guardian
- Identity and address proofs of both minor and guardian
- Proof of date of birth of minor
- PAN cards of both minor and guardian
All documents must bear the signature of the guardian as required.
Procedure if guardian passes away
The guardian may pass away before the child turns 18. In this case, a notarised or attested copy of the death certificate must be provided to the DP. The DP will then freeze the account.
To reactivate the account, the child’s new guardian must complete the documentary formalities. If the new guardian has been appointed by a court, a copy of the court order must be provided to the DP.
Procedure after child turns 18
The child must now submit a new account opening form and complete the KYC formalities. The DP will provide a rights and obligations document, which the erstwhile minor must read and acknowledge receipt of. Once the application is processed, a new account will be opened and the guardian’s details will be replaced by those of their young ward. All holdings parked in the earlier account will be transferred to this new account.
The transfer of holdings is simple in case of a demat account for minors. In contrast, the transmission of assets from a standard demat account often requires extensive paperwork. The bigger benefit, of course, is that by using a demat account your child will have learnt how to manage their money. Once they turn 18, the training wheels come off, and you can watch them navigate the financial markets with confidence and ease.