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Learn about the rules and procedures minors must follow to apply for an IPO in India, including the necessary documentation and steps for opening a Demat account.
Initial Public Offerings (IPOs) are a great way for investors to own a stake in a company at an early stage. While IPOs are primarily designed for adult investors, minors can also participate in the IPO market. This article explains the key rules, documents, and the process required for a minor to apply for an IPO in India.
In India, the Securities and Exchange Board of India (SEBI) allows minors to invest in IPOs through a guardian, but there are certain steps involved. This guide outlines how minors can apply for IPOs, the roles of guardians, and the necessary documentation.
Minors are not allowed to enter into contracts under Indian law, so they cannot apply for IPOs directly. However, there are provisions in place that enable minors to participate in the IPO market through a guardian.
Minors can apply for IPOs under the supervision of a guardian. The guardian, typically a parent, is responsible for managing the investments on behalf of the minor and ensuring compliance with the regulations.
The Securities and Exchange Board of India (SEBI) permits minors to apply for IPOs, but the application process is handled by the guardian. The application must include the guardian’s details along with the minor’s details. The guardian also needs to open a Demat account on behalf of the minor for holding the shares in electronic form.
A Demat account is essential for storing and holding shares in electronic form. It is a requirement for anyone participating in the stock market, including minors.
A Demat account is a digital account that holds the securities (stocks, bonds, etc.) purchased through the stock market. It eliminates the need for physical certificates, ensuring safer and more efficient transactions.
For minors, the Demat account must be opened under the minor’s name but operated by the guardian until the minor reaches the age of majority (18 years). This allows the guardian to manage the account and make investment decisions on behalf of the minor.
The process of opening a Demat account for a minor involves the following steps:
Step 1: The guardian needs to approach a stockbroker or a bank to open a Demat account.
Step 2: The minor must provide proof of age (usually a birth certificate or school certificate), and the guardian must provide their KYC documents (PAN card, address proof, etc.).
Step 3: The guardian will manage the Demat account until the minor turns 18.
Applying for an IPO on behalf of a minor is very similar to applying for an IPO as an adult, but with the involvement of a guardian. Here is a step-by-step process for applying for an IPO as a minor:
Minors, through their guardians, can apply for any IPO available in the market. The guardian can choose which IPO to apply for, based on their investment strategy and understanding of the IPO.
The guardian must fill in the IPO application form, providing both their and the minor’s details. The application can be done online through the stockbroker’s platform or offline through physical application forms.
For the minor’s IPO application, the following documents are necessary:
Minor’s Proof of Age (Birth Certificate or School Certificate)
Guardian’s KYC documents (PAN card, Aadhaar, address proof)
Bank Account Details (Minor’s and Guardian’s bank accounts)
Once the application form is filled, the guardian submits the form along with the required documents. Payment for the application is made through the guardian’s bank account, and the application amount will be blocked until the IPO allotment is processed.
The documentation for minors applying for IPOs involves both the minor and the guardian’s documents.
Birth Certificate or School Certificate for age proof.
Minor’s PAN Card
Guardian’s PAN Card
Guardian’s Proof of Address (Aadhaar, Voter ID, etc.)
Guardian’s Bank Account Details for the IPO application and refund processing
Yes, minors can open Demat accounts, but these accounts must be managed by a guardian until the minor reaches 18 years of age. The process of opening a Demat account for a minor is essentially the same as for an adult, with the difference that the guardian assumes control of the account.
The guardian is responsible for managing the minor’s investments and ensuring that the minor’s shares are held safely in the Demat account. The guardian can also sell or transfer shares from the minor’s account, subject to legal obligations.
Applying for an IPO online as a minor is straightforward. The guardian must first ensure that a Demat account is linked to the minor’s bank account. Here’s a breakdown of the steps:
The guardian needs to log into the trading platform provided by the stockbroker.
The guardian must fill in the details for both the minor and themselves.
The payment for the IPO application is made through the guardian’s linked bank account.
While investing in IPOs can be an exciting opportunity, it’s important to consider several factors when a minor is involved:
Guardian’s Financial Responsibility: The guardian must be financially responsible for the investments made in the minor’s name.
Taxation: The income generated from the minor’s investments is typically taxed in the hands of the guardian.
Investment Limits: There may be restrictions on the amount that can be invested by a minor in certain cases.
Like any investment, IPOs come with risks. Minors, through their guardians, should be aware of the following:
Market Volatility: IPO prices can be volatile, and there’s no guarantee that the value of the shares will rise post-listing.
Limited Control: Minors do not have control over their investments until they reach the age of majority (18 years).
Regulatory Restrictions: SEBI and other regulatory bodies may have restrictions on trading for minors.
Investing in IPOs can be a good way to start building wealth early, even for minors. However, it’s crucial that the process be carried out correctly with a responsible guardian. Minors can participate in IPOs under the supervision of a guardian, who must handle the necessary documentation, applications, and investments until the minor reaches the age of majority.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Sources
Securities and Exchange Board of India (SEBI) — Demat/Trading Account for Minor, https://www.sebi.gov.in/sebi_data/faqfiles/may-2019/1558004460882.pdf
Zerodha — Can a minor apply for an IPO?, https://support.zerodha.com/category/trading-and-markets/ipo/ipo-application/articles/minor-ipo
Angel One — How to Apply for an IPO in a Minor’s Name, https://www.angelone.in/knowledge-center/ipo/how-to-apply-for-ipo-in-minors-name
Chittorgarh — How to apply in an IPO on a minor's name?, https://www.chittorgarh.com/faq_pg/how-to-apply-in-an-ipo-on-a-minor-s-name/1778/
Bajaj Finserv — How to Apply for an IPO in Minor Account, https://www.bajajfinserv.in/how-to-apply-ipo-in-minor-account
No, a minor cannot directly apply for an IPO. A guardian must apply on the minor's behalf.
The minor's PAN card, guardian's KYC documents, minor's proof of age, and bank account details are required.
Upon reaching adulthood, the minor can choose to convert the minor Demat account into a major account or open a new account in their name.
Yes, the guardian can sell shares on behalf of the minor through the minor's trading account.
Yes, income earned by the minor from investments is typically taxed in the hands of the guardian, which may be beneficial depending on the guardian's tax bracket.
