Many parents start to plan and work for the wealth creation for their kids and at times they do it directly in the name of their child so that to maintain discipline at their end and take care of the tax implications as the minor income remains there until they reach 18. This allows the parents not to add that income to theirs and hence save on the additional tax payments.
In order to submit an initial public offering (IPO) bid, the minor must fulfil specific requirements, the most obvious is having a demat account. To open a minor demat account you need to have a PAN card on the name of your child and a bank account that is usually of parents. The minor demat account and the bank account needs to be linked so that the funds can be transferred for investment.
It is also necessary to complete the KYC application of both the child and the parent or guardian to keep the account active. Not all brokers provide the service of minor demat account hence speak to your current broker before you start this process, or you can open the minor account with Chola Securities.
Once the demat account is opened, follow these steps to apply for an IPO.
Shortlist the IPO you want to invest and then submit the application. You can submit the application by any of the following methods:
- Online: You can opt to apply for the IPO through ASBA (Application Supported by Blocked Amount) feature on your broker's net banking platform. This is the most straightforward method of submitting an IPO application. It is important to note that only a select number of banks permit the submission of IPO applications through net banking. In this instance, the primary account holder for both the demat account and the bank account must be same.
- Offline: Submit a physical application form to your broker or bank. If the bank does not provide online IPO application submission for minors, you can fill and submit the application form physically. You need to mention the child demat account number in the form as well.
- For minors aged 15 and older, it is possible to apply through their broker using UPI. The maximum limit is Rs 5 Lakhs that is allowed to invest through this method.
Submitting an application for an initial public offering of SME
Ensure that the child’s name is listed in the same order in the SME IPO application as it is in the demat account. Furthermore, the application must be completed in the same order if the minor is the primary holder, and the guardian is the secondary holder.
Benefits of applying IPO in minor’s name:
Long-term growth:
By investing in an IPO at an early stage, the funds have the potential to appreciate in value over time, potentially reaching a higher value by the time the child reaches adulthood. You also can get the benefit of the dividends that can increase the initial investment. Educational opportunity:
This process allows your children to be aware of investing and experience it practically that can emphasise on the importance of financial independence. Tax implications:
Investment in minor’s name attract lower taxes than usual.
What happens to these investments when your child turns 18?
Upon reaching the age of 18, your child has the option to either update their account information, close the account, or begin anew. The minors have the option to maintain the minor account and establish a new account to transfer their shares to the new account.
The alternative is to replace the account's documents with those of the account holder's parent or guardian to convert the account into a major account. Their account is operational without the necessity of a parent or guardian once they have obtained a demat account, trading account, and PAN card in their name.
The process of applying for an IPO in the name of a minor can provide your child with ready assets that can be used for education and other purposes when they reach adulthood. It also assists in the reduction of capital gains tax.