Demat or DematerialisedAccounts are electronic ways to hold tradable securities like Stocks, Bonds, and Mutual Funds. As the Securities and Exchange Board of India has made DematAccounts mandatory in India, the question is who can hold one.
Eligibility to open the account
Opening a DematAccount requires documents like a PAN card, income proofs, bank details, along with other government-authorised identity cards. Therefore, it is understood that only 18 years and above can open DematAccounts. However, that is not the case, and a DematAccount is accessible for minors as well. But naturally, the guardian operates the account till the minor attains the majority.
As per SEBI guidelines, the guardian should be either of the parents. In the absence of both, the guardian may be appointed by the court. The same individual is also responsible for carrying out the account opening responsibility on behalf of the minor. This includes establishing the minor’s age with original certificates and signing the documents required during the process. But here, there are additional steps in the onboarding and KYC process.
As the formalities get carried out for both the minor and the guardian, in the event of the death of an existing guardian, the account gets frozen till documents of a new guardian are furnished. What is worth noting is that a minor cannot be a joint holder for the Demat Account.
What about trading?
Minor’s DematAccount is essentially for holding securities and not for trading. So, there are certain restrictions when it comes to a minor’s trading account. You can only open them when involving the sale of securities that a minor has possessed through Initial Public Offering, inheritance, or donation, among other reasons. Again, the guardian operates the account until the minor turns 18 years old. So, it is noteworthy that minors cannot enter a buying/selling contract with brokers for any security.
What happens after that?
Since the best Demat Account for long-term investment is ideal for minors, choose them wisely. Once the original holder is 18 years and above, KYC getsrefreshed, and the guardian gets removed as the account operator. At this stage, linking the major’s PAN to the DematAccount becomes mandatory. Rules vary slightly for non-resident Indians. Unlike resident Indians opening Regular Account, NRIs open arepatriableDematAccount.
While both offline and online KYC processes are available, the securities regulator recently mentioned that it has also standardised and simplified how it processes requests about change or information updates from 2022. This includes the change of status from minor to major.
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