Minor Applicants for IPO: Eligibility and Process

An IPO is a process through which privately held companies enter the public domain. It has become a stock market trend and a necessity for trading. They are the most famous investing vehicle as they are extremely simple to invest in, can create wealth over the long term, and have access to a plethora of research and data, among other benefits, which contribute to their popularity.

Can a minor apply for an IPO?

With certain requirements, a minor can be eligible to apply for an IPO. IPOs may also turn out to be a wise investment for the future of your child. This is an additional chance to start investing young, and it’s also an excellent time to teach your child the value of saving money and how it might potentially grow your wealth in the long run. 

According to Section 10 (32) of the Income Tax Act of 1961, you are entitled to an annual exemption of Rs.1,500 per child for any income derived from investments made in a minor’s name.

Minor refers to a person who is under the age of 18. While this age varies from country to country, in India, the legal age of adulthood is 18 years old.

How Can Minors Apply for IPOs

Here are the quick steps to apply for an IPO using a minor’s account:

Step 1: Open a Demat account in your child’s name
To open it, you’ll need your child’s PAN and Aadhaar card. Today, even minors can get a PAN card easily if they have Aadhaar and basic documents. There is no income proof needed.

Here are all the documents that you will need to open a minor account-

1. Birth certificate (Minor)

2. PAN card (Minor)

3. Address proof of the minor

4. Bank proof (minor): Cancelled cheque, passbook, or bank statement. 

5. PAN card of the guardian

6. Address proof of guardian

7. 1 photo of the minor and the guardian each

Also, KYC must be completed for both the child and the parent or guardian.

Step 2: Once everything is set up, you can go apply for IPOs.

Now, for instance when an IPO opens, the application can be done from the minor’s account. And then, as the IPO lists, the units are allotted in the minor’s account.

To trade and profit from listing gains, securities/units from minor demat accounts need to be transferred to the parent or guardian’s trading account.

This is because minors can’t trade. 

What happens when the minor turns 18?

After turning 18, the minor has two options, either

• Transform their minor Demat account to a major one by substituting their parents’ or guardians’ information, OR
• Close their minor account and create a new one.

Should you invest in IPOs using your child’s name?

It’s crucial to understand why you’re choosing a certain investment, whether it’s an IPO or anything else. For instance, you undoubtedly know that IPOs can create wealth over the long term if you want to get a head start on your child’s financial future. 

NOTE-  If you want to invest in IPOs in your child’s name to gain a tax break, remember that any income the child earns will be combined with the parent’s income. You will then need to pay the necessary tax.

Final Note

Investing in an IPO in your child’s name is a viable option. It may be a starting point toward a stable financial future and encourage them to develop savings habits.

Want to open a Demat account for your child? Download the Shoonya app today and create your child’s Demat account easily. We are a Multi-asset trading platform with advanced comparability tools that analyze, indicate, and give the best match for investors and help you make wise decisions.