Many parents look for smart, long-term ways to build wealth for their children, and investing in the stock market from an early age is one of them. With the growing popularity of mainboard IPOs and the ease of digital account opening, a common question that comes up is whether an IPO investment can actually be made in a child's name.
The short answer is yes, but the process works a little differently from a regular IPO application. Since a minor cannot independently manage financial transactions, Indian securities regulations require the involvement of a parent or legal guardian at every step.
This guide explains how a minor can apply for an IPO, what documents are needed, how taxation works, and what happens to the shares once the child turns 18.
Can a Minor Apply for an IPO?
Yes, a minor can apply for an IPO in India, but only through a Demat account opened in the minor's name and operated by a parent or court-appointed guardian. A minor cannot independently operate a trading account. Any IPO application or subsequent sale of shares is carried out by the guardian in accordance with the broker's policies and applicable regulations.
In practice, this means:
- The shares allotted in the IPO are credited to the minor's Demat account.
- The application, payment, and any future transactions are carried out by the guardian.
- Once the minor turns 18, the account is converted into a regular, independently operated Demat account.
This structure allows parents to start building an investment portfolio for their child well before adulthood, while ensuring that a responsible adult remains accountable for every transaction.
Eligibility Criteria for Applying for an IPO in a Minor's Name
Before applying for an IPO on behalf of a child, it helps to be clear on who qualifies and what is required.
Age of the minor:
Anyone below 18 years of age is considered a minor under Indian law and is eligible to have an IPO investment made in their name.
Guardian requirement:
A natural guardian (parent) or a court-appointed guardian must operate the account. A single guardian can be the registered guardian for more than one minor child's account.
PAN card for the minor:
A minor must have their own PAN card. This can be obtained using the minor's Aadhaar card and birth proof, even though the minor cannot sign the application themselves.
Bank account in the minor's name:
The application is generally expected to be made using the bank account linked to the minor's Demat account or as permitted by the bank and broker. It is advisable to verify the accepted payment method with your broker or SCSB before applying.
Single holding only:
A minor's Demat account cannot have a joint holder. The minor is always the sole, first holder.
Documents Required
Opening a minor Demat account and applying for an IPO calls for a slightly more detailed set of documents than a regular adult account, since the identity of both the minor and the guardian needs to be verified.
For the minor:
- Birth certificate or school leaving certificate as age proof
- PAN card
- Aadhaar card (if available)
- Passport-size photograph
For the guardian:
- PAN card
- Aadhaar card or other valid address proof
- Bank account details and a cancelled cheque or statement
- Guardianship proof, such as the birth certificate showing the parent's name, or a court order in case of a legally appointed guardian
For the account:
Duly filled and signed account opening form (signed by the guardian on behalf of the minor)
Bank proof showing a savings account in the minor's name
Requirements can vary slightly between depository participants and brokers, so it is worth checking the specific document checklist with your broker before starting the process.
How to Apply for an IPO in a Minor's Name (Step-by-Step)
Step 1: Open a Minor Demat Account:
Approach a SEBI-registered stockbroker or depository participant and open a Demat account in the minor's name. The application form will need to be signed by the guardian, along with submission of the documents listed above.
Step 2: Link a Bank Account:
A bank account in the minor's name should be linked to the Demat account. This account will be used for blocking funds and receiving any refunds or proceeds from the sale of shares.
Step 3: Check the IPO Details:
Once the account is active, review the IPO's price band, lot size, and issue dates, which are available on the stock exchange websites or your broker's IPO section.
Step 4: Submit the Application:
The guardian places the IPO application using the minor's Demat account details, while operating through their own trading account or net banking, depending on the mode of application chosen.
Step 5: Funds Get Blocked, Not Debited:
Under the ASBA process, the application amount is blocked in the bank account and is debited only if shares are allotted.
Step 6: Allotment and Listing:
On the basis of the allotment date, shares (if allotted) are credited to the minor's Demat account, and any unblocked amount is released back to the bank account.
Can You Apply Through ASBA or UPI?
Yes, both routes are available, though with some practical differences.
1. ASBA (Applications Supported by Blocked Amount) via net banking:
This is the most widely used method. The guardian submits the ASBA application through the bank account linked to the minor, wherever the bank supports such applications. They navigate to the IPO/ASBA section, select the IPO, and enter the minor's Demat account details along with the application amount. The bank blocks the required funds until the allotment process is completed.
2. UPI-based application:
Many broker apps also allow IPO applications through UPI. This route works well when the linked bank account supports UPI mandates for the minor's account. Since implementation can vary by broker and by the minor's age, it is a good idea to confirm with your broker whether UPI-based application is supported for a minor account before relying on it.
3. Physical application:
Where digital modes are not convenient, an offline form can be submitted at a Self-Certified Syndicate Bank (SCSB) branch, with the guardian signing on behalf of the minor.
Regardless of the mode chosen, the underlying rule remains the same: the Demat account must be in the minor's name, and the guardian carries out every action on the minor's behalf.
Taxation on IPO Investments Made in a Minor's Name
Understanding tax treatment is an important part of planning any investment for a child.
1. Clubbing of income:
Under Section 64(1A) of the Income Tax Act, 1961, any income earned by a minor, including capital gains from IPO shares, is clubbed with the income of the parent whose total income is higher (before including the minor's income). This income is taxed at that parent's applicable slab rate.
2. Exemption available:
Under Section 10(32), the parent can claim an exemption of up to ₹1,500 per child per financial year, for a maximum of two children, on the income being clubbed.
3. No separate ITR generally needed:
A minor is usually not required to file a separate income tax return for such investment income, since it gets reported and taxed under the parent's PAN.
4. Exception:
If the income arises from the minor's own skill, talent, or manual work (for example, earnings from acting or sports), it may be assessed separately in the minor's own hands rather than clubbed with the parent's income.
5. Dividends:
Dividend income from IPO shares is also subject to the clubbing provisions under Section 64(1A), unless an exception under the Income Tax Act applies.
Since tax rules can change and individual circumstances vary, it is advisable to consult a qualified tax professional or chartered accountant for guidance specific to your situation.
Important Rules to Remember
- The minor must always be the sole holder of the Demat account; no joint holding is permitted.
- A minor cannot independently operate a trading account. Any trading activity is carried out by the guardian in accordance with the broker's policies.
- Only delivery-based investments are allowed. Intraday trading, futures and options, margin trading, and pledging of shares are not permitted in a minor's account.
- The application amount must be paid from a bank account linked to the minor, not from an unrelated account of the guardian.
- All forms, declarations, and applications must be signed by the guardian, not the minor.
- The guardian remains fully responsible for the accuracy and compliance of every application made.
Can a minor sell IPO shares?
Yes. IPO shares held in a minor's Demat account can be sold by the guardian on behalf of the minor through the guardian-operated trading arrangement, subject to the broker's policies and applicable regulations. The guardian continues to operate the account until the minor becomes a major.
Benefits of Applying for an IPO in a Minor's Name
Early start to wealth creation: Starting investments early allows a longer time horizon for potential long-term growth, which can be valuable for goals like a child's education or future needs.
Financial literacy through practice: As the child grows older and eventually takes charge of the account, having an existing portfolio can serve as a practical introduction to markets and investing.
Separate financial record: Keeping investments in the minor's name maintains a distinct record of assets meant for the child, separate from the guardian's own portfolio.
Structured, long-term approach: Since speculative activities like intraday and F&O are not allowed in a minor's account, it naturally encourages a buy-and-hold, long-term investment approach.
Supports Long-Term Financial Goals: Helps build a long-term investment corpus for goals like higher education, entrepreneurship, or wealth transfer.
Things to Consider Before Investing in an IPO for a Minor
Assess the Risks:
IPO investments carry market risk, and share prices, including listing performance, cannot be guaranteed. It is important to assess the issue on its fundamentals rather than short-term listing gain expectations.
Added responsibility for the guardian:
Since the account is guardian-operated, the guardian should be comfortable with the added responsibility of managing paperwork, applications, and future corporate actions until the child turns 18.
Liquidity needs:
As intraday and leveraged trading are not permitted, funds committed here are better suited for long-term goals rather than short-term liquidity needs.
Read the offer document:
Every IPO comes with a prospectus containing details on the company's financials, risk factors, and object of the issue. It is worth reviewing this before applying, even for a minor's account.
Common Mistakes to Avoid
Using the guardian's personal bank account instead of one linked to the minor for the application payment.
- Assuming a trading account can be opened in the minor's name; it cannot; only the Demat account is in the minor's name.
- Ignoring PAN details mismatch: Some banks map the guardian's PAN as primary for a minor's bank account, which can occasionally cause a mismatch during ASBA applications. It is a good idea to verify this in advance with the bank.
- Overlooking the clubbing of income rule while estimating post-tax returns for the child's portfolio.
- Attempting speculative trades, such as intraday buying and selling, which are not permitted in a minor's account.
- Delaying the account conversion once the minor turns 18, which can restrict the ability to transact freely.
- Applying using mismatched PAN, bank account, and Demat account details, which can lead to application rejection.
What Happens to IPO Shares When the Minor Turns 18?
When the account holder turns 18, the minor Demat account needs to be converted into a regular major account. This is not automatic and requires an active step from the account holder:
- An online application form along with an account modification form needs to be submitted to the broker or depository participant.
- Identity can typically be verified either through an Aadhaar-based e-Sign process or by physically signing and couriering the form, depending on what the broker supports.
- Once verified, the account is updated to reflect the individual as the independent holder, with full rights to operate the Demat and open their own trading account.
Until this conversion is completed, the account continues to function under the earlier minor account restrictions. It is advisable to initiate this process close to the 18th birthday so that the transition is smooth and there is no gap in the ability to transact.
Conclusion
While the application process involves additional documentation and guardian oversight, investing through a minor's Demat account allows parents to begin building a long-term equity portfolio for their child in a regulated and structured manner. Understanding the account opening process, taxation rules, and operational restrictions helps ensure that the investment journey starts on the right foundation.
