Number of Minor Demat Accounts Cross 1 Lakh in Gujarat Amid Rising Investments in Children’s Names

Parents in Gujarat are increasingly turning to stock market investments to secure their children's financial future, with minor Demat accounts estimated to have crossed the one-lakh mark amid a wider surge in retail investing.

According to the figures and market estimates provided, Gujarat has around 1.10 crore registered investors, with minor accounts accounting for an estimated 1% of the total. The trend is particularly visible in Ahmedabad, Surat, Rajkot and Vadodara, where parents are exploring shares and mutual funds as long-term investment options for their children.

Parents Shift From Traditional Savings to Market Investments

Gold, fixed deposits (FDs) and government-backed savings schemes have traditionally been preferred options for parents planning their children's future. Stock market participation is now emerging as another avenue, particularly after the expansion of retail investing following the COVID-19 pandemic.

Parents are opening Demat accounts in their children's names to build funds for higher education, career plans and marriage. Some also seek to participate in Initial Public Offerings (IPOs) through accounts held by family members, although an additional account does not guarantee an allotment.

The growing interest reflects a broader shift towards market-linked investments, which can offer long-term growth but also carry the risk of losses.

India's Demat Accounts Rise Sharply After COVID-19

The expansion of retail participation has significantly increased the number of Demat accounts in India.

According to the figures cited in the supplied data, the number of unique individual Demat account holders rose from 2.82 crore in March 2019 to 8.96 crore in March 2024, an increase of approximately 217%.

The total number of Demat accounts nationwide has since crossed 16 crore, according to the provided material. However, the number of accounts is not the same as the number of unique investors, as one person can hold accounts with multiple depository participants.

The estimated number of minor accounts in Gujarat points to growing interest among parents in starting financial planning early, though the one-lakh figure is a market estimate rather than a confirmed official count in the information provided.

Who Can Open a Minor Demat Account?

The Securities and Exchange Board of India (SEBI) permits minors to hold Demat accounts, subject to applicable requirements. A parent or legal guardian manages the account until the child turns 18.

The account can hold eligible securities, but a minor cannot independently enter into stock trading contracts. Transactions and investment activities must comply with the rules applicable to minor accounts and the facilities permitted by the relevant intermediary.

Parents should understand the restrictions before opening an account, particularly if they intend to trade frequently rather than build a long-term investment portfolio.

Tax Rules for Investments Held in a Child's Name

Investments made in a minor's name do not automatically exempt the resulting income from tax.

Under Section 64(1A) of the Income-tax Act, 1961, a minor child's income is generally clubbed with the income of the parent whose income is higher, subject to specified exceptions. These include income earned through the child's manual work or application of their skill, talent or specialised knowledge, as well as certain income relating to a disability.

Capital gains and dividend income may therefore have tax implications for the parent, depending on the circumstances and the applicable tax provisions.

Parents should maintain proper records of investments, income and transactions to ensure that tax reporting is handled correctly.

What Happens When a Minor Turns 18?

A minor Demat account cannot simply continue operating under the same arrangements once the account holder reaches adulthood. The account holder must complete the required process to convert it into an adult account.

This generally involves submitting updated KYC documents, providing a PAN and bank account details, completing the necessary verification and signing the applicable account-opening or conversion documents. The precise procedure depends on the depository participant.

The transition gives the now-adult account holder independent control of the account, subject to the applicable rules.

Long-Term Planning Requires Careful Decisions

The rise in minor Demat accounts signals a growing willingness among Gujarat's parents to consider market-linked investments for their children's future. However, shares and mutual funds carry market risks, and returns are not guaranteed.

Parents should assess their investment horizon, financial goals and ability to withstand losses before committing money. Diversification and a clear understanding of account restrictions, tax obligations and the transition to adulthood can help families make informed decisions.