In today’s era of digital investing, parents are increasingly looking to provide their children with a financial head start. One of the most strategic ways to do this is by opening a Demat account for minors. While minors cannot trade directly in the stock market, a Demat account in their name can lay the foundation for long-term wealth creation.
This article offers a complete guide on Demat accounts for minors in India—covering the benefits, process, legalities, tax implications, and key things to keep in mind.
📘 What is a Demat Account for a Minor?
A Demat (Dematerialized) account for a minor is similar to a regular Demat account, except it is opened in the name of a child below 18 years of age. It holds securities like stocks, mutual funds, ETFs, bonds, etc., in electronic format.
Since a minor cannot legally enter into financial contracts, such an account must be operated by a guardian, typically a parent.
✅ Why Open a Demat Account for Minors?
| Benefit | Explanation |
|---|---|
| Early financial awareness | Teaches kids about investing and savings from a young age |
| Long-term wealth creation | Start SIPs or buy stocks for long-term goals like education or marriage |
| Tax planning | Helps reduce tax liability by investing in the child’s name |
| Gift of compounding | Longer investment horizon results in exponential compounding benefits |
| Financial discipline | Encourages children to manage money and understand the value of investments |
👨👩👧 Who Can Open a Minor Demat Account?
A parent or legal guardian can open a Demat account on behalf of a minor. The guardian must have the legal authority to manage the child’s finances and will act as the account operator until the child turns 18.
Guardians eligible to open a minor account:
- Biological father or mother
- Court-appointed legal guardian
- Adoptive parent (with proper documentation)
📄 Documents Required for Opening a Demat Account for Minors
To open a minor Demat account, you’ll need to submit both the minor’s and guardian’s documents.
| Document Type | Required for Minor | Required for Guardian |
|---|---|---|
| Identity Proof | Birth certificate or Aadhaar card | PAN card |
| Address Proof | Aadhaar card / Passport / School ID | Aadhaar card / Passport / Utility bills |
| PAN Card | PAN of the minor (if available) | Mandatory |
| Bank Account Proof | Minor’s bank account statement | Guardian’s bank account also accepted |
| Photograph | Passport-size photograph of minor | Passport-size photograph |
| Signature | Not applicable (minor cannot sign) | Guardian’s signature |
📝 How to Open a Minor Demat Account – Step-by-Step Process
Opening a minor Demat account is quite straightforward. Here’s a step-by-step breakdown:
Step 1: Choose a Depository Participant (DP)
Select a reputed DP such as:
- Zerodha
- Groww
- Angel One
- ICICI Direct
- HDFC Securities
- Upstox
- Sharekhan
Step 2: Fill the Account Opening Form
You’ll need to specify that the account is for a minor and provide guardian details.
Step 3: Submit KYC Documents
Upload or provide physical copies of the required documents for both the minor and guardian.
Step 4: In-Person Verification (IPV)
Some brokers may ask for IPV via video call or physical verification for security compliance.
Step 5: Account Activation
Once verified, the account will be opened, and the guardian can start investing on behalf of the minor.
🚫 Restrictions on Minor Demat Accounts
It’s important to understand the limitations of a minor Demat account:
| Action | Permitted? | Notes |
|---|---|---|
| Intraday Trading | ❌ No | Not allowed under SEBI rules |
| Futures & Options (Derivatives) | ❌ No | Minors cannot trade in the derivatives segment |
| Online Trading | ❌ No (direct) | Guardian can operate through their own trading account |
| Buying Shares | ✅ Yes | Only for delivery-based (cash segment) investments |
| Selling Shares | ✅ Yes | Guardian must sell on behalf of the minor |
| Applying for IPOs | ✅ Yes | Through ASBA using minor’s bank account |
🔄 What Happens When the Minor Turns 18?
Once the child becomes a major (18 years old), the account needs to be converted to a regular Demat account.
Steps to convert minor to major account:
- Submit new KYC with the now-major’s signature
- Provide a cancelled cheque of the new bank account
- Submit PAN, Aadhaar, and new photo
- Guardian ceases to operate the account
Until this process is complete, the account remains frozen for new investments or sales.
💸 Tax Implications of Minor Demat Accounts
While the idea is to reduce taxes by investing in a child’s name, clubbing provisions under the Income Tax Act apply.
| Scenario | Taxable in Whose Hands? |
|---|---|
| Earnings from investments in minor’s name | Clubbed with guardian’s income |
| Gifts received from relatives | Tax-free for both guardian and minor |
| Capital gains from investments | Taxable under guardian’s ITR (if child < 18) |
| Once child turns 18 | Income taxed in the child’s own name |
To make use of tax-saving, invest in tax-exempt instruments like PPF or use minor’s bank account where interest income is low.
🧒 Best Investment Options Through Minor Demat Account
| Investment Type | Suitability | Expected Returns | Risk Level |
|---|---|---|---|
| Mutual Funds (via SIP) | Ideal for long-term goals | 10-14% (Equity funds) | Moderate-High |
| Blue-chip Stocks | Great for long-term compounding | 10-15% CAGR | Moderate |
| ETFs | Good for index-based passive investing | Market returns | Low-Moderate |
| Bonds/Debentures | Stable returns, low volatility | 6–8% | Low |
| IPOs | Potential for early gain | Varies | High |
🧠 Tips for Parents Opening Minor Demat Accounts
- Start early: The earlier you begin, the more compounding works in your favor.
- Use for goal-based investing: Allocate funds for education, marriage, etc.
- Track performance: Monitor investments periodically for consistent growth.
- Teach financial basics: Involve your child in understanding what you’re doing and why.
- Keep paperwork updated: Ensure PAN, Aadhaar, and bank details are current for smooth operation.
📈 Best Brokers for Opening Minor Demat Accounts in India
| Broker | Account Charges | USP |
|---|---|---|
| Zerodha | ₹200 opening + AMC | Best for low-cost investing |
| Groww | Free | App-based, user-friendly |
| Angel One | Free | Full-service + discount broker |
| ICICI Direct | ₹700+ annual fees | Trusted with banking integration |
| HDFC Securities | ₹750+ | Premium service with HDFC Bank tie-up |
| Upstox | Free | Quick account opening, zero brokerage plans |
🔐 Safety and Legal Considerations
- Nomination: Always add a nominee to avoid legal hassles.
- Guardian liability: Any misuse or misreporting is legally the guardian’s responsibility.
- SEBI oversight: SEBI guidelines ensure transparency and investor protection for minors.
🧾 FAQs About Minor Demat Accounts
Q1. Can a minor have more than one Demat account?
➡️ Yes, but only one account with each DP and under a single guardian.
Q2. Can I trade on behalf of my child?
➡️ Yes, but only in delivery-based equity (no F&O or intraday).
Q3. Is a minor’s PAN card mandatory?
➡️ It’s advisable, especially if you plan to invest in mutual funds or IPOs.
Q4. Can I link my own bank account to the minor Demat?
➡️ Ideally, a minor’s bank account should be used, but some brokers allow guardian’s account.
Q5. What happens if the guardian dies before the minor becomes major?
➡️ A new guardian (preferably court-appointed) must take over with proper legal documentation.
🏁 Conclusion
Opening a Demat account for your child is a thoughtful financial move that introduces them to the world of investing and disciplined savings. With proper planning, compliance, and goal-based investing, this small step can create significant wealth by the time your child turns 18.
It’s not just about money—it’s about giving them a head start in financial literacy and independence.