Guide: IPOs in Minor Account

In the world of finance and investments, Initial Public Offerings (IPOs) are an exciting avenue for potential investors to participate in the growth of promising companies. For those who wish to apply for IPOs in a minor account, there are specific steps and considerations to keep in mind to make the process seamless. In this comprehensive guide, we’ll walk you through every aspect of applying for IPOs in a minor account, ensuring that you have all the information you need to get started.

Understanding IPOs and Minor Accounts

What is an IPO?

An IPO, or Initial Public Offering, is the process through which a private company becomes publicly traded by issuing shares to the general public. This marks a significant milestone in the company’s growth and provides an opportunity for investors to become shareholders.

What is a Minor Account?

A minor account is a financial account opened in the name of an individual who is below the legal age of majority. Minors typically require a custodian, usually a parent or guardian, to manage and oversee the account until the minor reaches the legal age.

Can a Demat and Trading account be opened for a minor?

• Both demat and trading accounts can be opened in the name of a minor child. These accounts are operated by a Guardian until the minor reaches the legal age of majority.
• The Guardian can be the father or, in the absence of the father, the mother. If both parents are absent, a Guardian can be appointed by the court.
• The Guardian is legally entitled to open, operate, and even close bank accounts, demat accounts, and trading accounts in the minor’s name.
• Two KYC Application Forms must be filled out: one for the Guardian and another for the minor, which should be signed by the Guardian.
• Important points to note about Minor Demat & Trading Accounts:
  • Demat accounts can be opened in the name of a minor child by the natural guardian (parents) or court-appointed guardians only.
  • The guardian must fulfill all document and KYC requirements to open the account in the minor’s name.
  • PAN Card of the legal Guardian is required to open the demat or trading account.
  • The date of birth certificate is required for a minor child.
  • When the minor becomes a major, the account becomes inoperative, and a new separate account must be opened. Demat holdings can be transferred from the minor’s account to the major account.
  • If paper shares are held jointly with a minor, they need to first be transferred to the minor’s name and then to the demat account in the minor’s name.
  • A 3-in-1 Account (Bank + Trading + Demat Account) can be opened in the name of a minor.
  • A minor cannot be a joint holder in a demat account; the demat account can only be held in the name of the minor.
  • If shares are held jointly with a minor in paper form, they need to first be transferred to the minor’s name and then to the demat account in the minor’s name.
  • Through the Minor’s Trading account, only the delivery of shares can be bought and sold.

This information should provide a clear understanding of the rules and procedures regarding demat and trading accounts for minors and their guardians.

Does minor need a bank account before opening a demat or trading account?

A separate bank account in the minor’s name is not required to open a demat or trading account. Instead, the minor can be added as one of the bank account holders, either as the sole holder or jointly with the guardian and/or other siblings. This inclusion of the minor in the guardian’s bank account is sufficient to open a demat or trading account.

Furthermore, for tax purposes, any income earned by the minor is typically added to the parent’s income. Therefore, it may not be necessary or practical to have a separate bank account for the minor.

Thank you for providing this valuable information, which helps to clarify the process of opening demat and trading accounts for minors.

Can a minor demat account be opened without its PAN card?

When opening a demat account and trading account for a minor, it is mandatory for the minor to have a PAN (Permanent Account Number) card. Additionally, the guardian, whether it’s the father or mother, must also provide their PAN card along with the minor’s PAN card during the account opening process.

What are minor stock trading account restrictions?

Minor Trading Accounts are typically allowed only to invest in the stock market through Equity Delivery Trades. Minors are not permitted to engage in the following trading segments:

1. Equity Intraday: Minors are restricted from participating in intraday trading, which involves buying and selling stocks within the same trading day.
2. Equity Derivative Trading (F&O): Trading in equity derivatives, including futures and options (F&O), is not allowed for minors.
3. Currency Derivatives (F&O): Minors are also prohibited from trading in currency derivatives, which includes currency futures and options.

 Can a minor be a joint holder in a demat account?

A minor cannot be a joint holder in a demat account, and a joint account cannot be opened with a minor as one of the account holders. A minor’s demat account should indeed be a separate and distinct account.

What happens when a minor reaches 18?

When a minor completes 18 years of age and becomes a major, they have two options regarding their Demat Account:

1. Close Minor Demat Account and Open a New Demat Account:
   • The first option is to close the existing Minor Demat Account and open a new Demat Account in the name of the individual who has now become a major.
   • All securities held in the minor account can be transferred to this new Demat Account.
2. Convert Minor Demat Account to Major Demat Account:
   • The second option is to convert the existing Minor Demat Account into a Major Demat Account.
   • The individual who has become a major will need to sign a new agreement with the Depository Participant (DP) and complete all formalities required for opening a new Demat Account.
   • Details of the guardian entered earlier will need to be deleted or updated as necessary to reflect the change in account status.

Requirements for making an IPO bid

1. PAN Card for the Minor: It is mandatory for the minor to have a PAN (Permanent Account Number) card when opening a Minor Demat Account.
2. KYC Requirements: The legal guardian is responsible for providing all the necessary documents and fulfilling the Know Your Customer (KYC) norms during the account opening process.
3. PAN Card for Guardian: The PAN card of the legal guardian is required when opening both a demat and trading account for the minor.
4. Date of Birth Certificate: A valid date of birth certificate for the minor child is required as part of the documentation.

Methods to Apply for an IPO on Behalf of a Minor:

There are three primary ways to apply for an IPO on a minor’s behalf:

a. ASBA IPO Net-Banking Application: Some banks, such as HDFC, allow minors to submit an IPO application using their net-banking account. This method is the most straightforward.

• Note that the principal account holder for both the bank account and the Demat account used for the IPO application must be the same (with the same PAN number).

b. Paper-Based IPO Application: If your bank does not offer online IPO applications for minors, you can submit a paper-based IPO application to your bank branch.

c. UPI as a Payment Method (Minors Over 15 Years Old): Minors over the age of 15 can access online banking and create UPI IDs. Once a UPI ID is set up, they can apply for an IPO through any stockbroker that supports UPI-based IPO applications.

IPO Application Limit for Minors Using UPI:

• Minors over the age of 15 can apply for an IPO using UPI.
  • They can apply for up to Rs 5 lakh worth of shares in an IPO using this method.

These steps and methods provide a clear overview of how to submit an IPO application on behalf of a minor, taking into account the necessity of a Demat account, PAN, and the available application options.

Can I sell shares which I received in the minor demat account through IPO allotment?

Certainly, minors are permitted to engage in equity delivery trades and access IPO shares at any time. To facilitate this, please get in touch with your broker.

Additionally, it is possible to transfer shares from a minor’s demat account to a Guardian’s demat account and subsequently sell them. This approach doesn’t impact the tax liability since it lies with the Guardian.

It’s important to note that minor accounts are not eligible for equity intraday or futures and options (F&O) trading.

How do I sell shares received in IPO allotment in minor demat account?

There are two methods to sell IPO shares:

1. You can sell them directly through the minor trading account connected to the minor demat account where you received the allotment. The procedure is the same as for any other trading account.
2. Alternatively, you can transfer the shares to the Guardian’s trading account and sell them from there.

It’s worth noting that since the tax liability is with the Guardian’s account, the selling location doesn’t actually affect the tax implications.

Conclusion

Investing in IPOs in your child’s name provides a strong financial foundation for their adulthood, fostering financial independence and relieving educational funding pressures.