A minor in India is an individual who is below 18 years. However, investing in stocks or other assets doesn’t necessarily need you to be above this age. Even the parents may want to invest in their child for a better and financially secure future. So, most of the brokerage houses in India allow parents to open a trading account on behalf of their minor child.
A minor trading account can be opened on behalf of a minor by their birth parents. Most brokerage houses offer a free trading account for minors However, there are some criteria for opening this account, and only if those criteria are met, the opening of a trading account for minors is allowed in India.
The criteria for opening the minor trading account is that it has to be used solely for selling shares/securities that the minor has acquired by investing in an IPO, or by inheritance from parents/grandparents and other family members, corporate action, and off-market transactions. The off-market transactions include –
- Donation or gift
- Transfer of securities between family members; and
- Government or regulatory order or direct and by its implementation.
However, the process of selling the securities from the minor trading account can be done only by the birth parents of the minor. Only the birth parents can handle the account.
No, a minor trading account cannot be used for buying shares and securities. It cannot be used for entering into any contractual agreement where trading is involved. It can only be used for the selling of the securities already in the possession of the minor under the criteria mentioned above.
No, a minor trading account can only be opened as a single or individual account. The birth parents can only handle the minor trading account on behalf of the minor until they turn into a major, but it is not possible to open a joint minor trading account as per SEBI guidelines.
To open a minor trading account, you would require:
- The account opening form of the brokerage house
- The KYC form of the minor and the KYC documents of the minor demat account has to be signed by the birth parents. It has to be verified as well.
- Passport-size photographs of the minor and the guardian have to be attached as well to the application form.
- PAN of the minor, birth certificate, address proof, and canceled cheque of bank statement in the name of the minor account holder.
Yes, KYC compliance is necessary and mandatory for minor trading accounts, and it should be done by the birth parents of the minor on whose behalf the account has been opened for using the account.
Can a Minor Trading Account be Continued After They Become a Major/Adult?
Yes, after the minor turns into a major/adult then they can handle the account on their own. When the person becomes a major, they need to comply with all the requirements of the trading account, and only then can they continue with the account for trading.
There are different benefits of opening a minor trading account –
- A trading account can be opened for a minor without paying any extra charges, as trading account charges are the same for all trading accounts.
- If the minor has inherited or possesses securities by corporate action/off-market transactions/IPO investment then, it can be used for their future financial planning, as well. Natural parents can use the same for a better financial future.
- It helps in understanding savings/ financial planning better at a young age which can help the minor to plan their future in a better way.
So, if your minor child possesses some securities or you want to invest in IPOs on their behalf, then you can easily open a minor trading account in India with different brokerage houses following the SEBI rules and regulations regarding the minor trading account.