Minors cannot directly trade or open a trading account, but a parent or legal guardian can open it on behalf of the minor

How to open a demat or trading account for a minor Its also known as a custodial account

Q.Can a demat account be opened for a minor?
Since there is no age restriction for having a demat account, it can be opened in a minor’s name by his parent or legal guardian. Technically, the account is in the minor’s name, but it is managed and operated by the parent or guardian. Also, the minor can’t be a joint holder along with his parent or guardian.

Q.Can a trading account be opened for a minor?
Minors cannot directly trade or open a trading account, but a parent or legal guardian can open it on behalf of the minor. It’s also known as a custodial account.

Q.What kind of trading is allowed in such accounts?
Since a minor cannot enter into a contract with a stockbroker to buy or sell securities, or conduct financial transactions, the account can be opened only for selling securities possessed by the minor through an investment in an IPO, inheritance, corporate action, or market transfers. Only equity can be bought or sold through this account, and no intra-day trading, currency or derivative trading is allowed.

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Q.What happens when the minor turns 18?
The existing account can be converted into a regular account when the child turns 18, but a new account opening form has to be submitted along with the required documents.

Q.What is the tax liability for a minor’s demat/ trading account?
If a minor’s account earns income by way of capital gains, it will be clubbed with the income of the parent who earns more under Section 64 (1A), and will be taxed at his slab rate. The parent can claim an exemption of up to Rs.1,500 per child on the clubbed income under the old tax regime.

Q.Where can the accounts be opened?
The accounts can be opened with a depository participant (DP) or stockbroker who is registered with the Central Depository Services Limited (CDSL) or the National Securities Depository Limited (NSDL). Most brokers and online broking platforms offer a comprehensive demat-cumtrading account for minors.

This story originally appeared on: India Times - Author:Faqs of Insurances