A minor Demat account is an excellent way to introduce young investors to the stock market while securing their financial future. However, many parents and guardians make common mistakes that can lead to compliance issues or financial inefficiencies. Here are some key mistakes to avoid:

1. Not Understanding the Regulatory Restrictions

A minor Demat account has several restrictions, such as:

• It can only be operated by a guardian (parent/legal guardian).


• Only equity delivery trades are allowed (no intraday or derivatives trading).


• The minor cannot independently operate the account until they turn 18.

Ignoring these rules can lead to compliance issues with the brokerage and SEBI.

2. Using the Minor’s Account for Personal Trading

Some guardians use a minor’s Demat account to trade on their behalf. This is against SEBI regulations and can lead to penalties. The account should only be used for the minor’s investments.

3. Not Keeping KYC Documents Updated

When a minor turns 18, the account needs to be converted into a regular Demat account. Failing to update KYC documents in time may lead to restrictions or even suspension of the account.

4. Ignoring the Tax Implications

Any income from a minor’s Demat account (such as dividends or capital gains) is clubbed with the guardian’s income and taxed accordingly. Not considering this can lead to tax miscalculations.

5. Not Having a Long-Term Investment Strategy

A minor’s Demat account should ideally be used for long-term wealth creation. Investing in speculative stocks or frequent trading defeats the purpose of securing the child’s financial future.

Conclusion

Managing a minor Demat account responsibly ensures compliance with regulations and builds a strong financial foundation for the child. Avoiding these mistakes will help guardians maximize benefits while staying within legal guidelines.