How To Apply For IPO In A Minor's Name?

Investing for a child early-on is a great way to secure their future. Many parents prefer to build a corpus for their child to help secure finances for their higher education. While regular investments is a good strategy, initial public offerings (IPO) can also be looked at as a good opportunity to multiply funds.

Further, since equity-linked investments work best when made for the long-term, the child can remain invested in shares allotted in an IPO until he/she turns 18 years of age.

Requirements to bid for an IPO

Minors are eligible to bid in an IPO, provided, certain conditions are met. To bid for an issue, the applicant requires to have a Demat account as shares allotted will be credited to it and in order to open a Demat account, PAN and bank account is also required.

Since a minor does not usually have their own source of income, such an individual will not be issued a PAN. Minors can open a Demat account using parent's/guardian's PAN and bank account. A separate bank account in the name of a minor is not required.

Many stockbrokers allow minor Demat account but not a trading account. Minors can use the parent's/guardian's bank account to link it with the trading account (in the name of the guardian). However, some brokers allow both Demat and trading account in the name of a minor. Through a minor's trading account, only delivery of shares can be bought or sold. Further, minor cannot be a joint holder of a Demat account but can be held only in the name of the minor.

Make sure the Demat account is opened much ahead of an upcoming IPO that you intend to invest in. Two KYC Application Forms must be filled- one for the guardian/parent and another for the minor (to be signed by guardian/parent).

Applying for IPO

Minor can use his/her parent's/guardian's bank account to link it with the trading account. The primary way for a minor to bid for an IPO is by choosing a bank that provides 'third party ASBA Application.'

If applying through a bank, i.e., ASBA as a payment method, note that bank's do not offer net banking facility to minors. The guardian/parent can access a minor's bank account using guardian's client ID or in case of public banks like SBI, which allow a maximum of 5 IPO applications per bank account, one of the applications can be made in the name of the minor.

Private banks like ICICI Bank or HDFC Bank or Kotak Mahindra Bank pre-select the PAN number of the guardian in the case of minor IPO application through net banking.

Minors above 15 years of age with a bank account (single, not joint) are eligible for using UPI as a payment option for IPO application. Minors below the age of 15 years or a minor who is a joint account holder are not eligible for UPI payment method.

If minor has independent income

Generally, investments made in the name of minor by parent/guardian is clubbed with the income of parent/guardian for tax purposes. In all financial matters, the minor will be represented by the parent/guardian.

However, in rare instances where the minor is earning his/her own income (in the case of child artists or sports person), such income is considered as independent income and the person will be issued a PAN.

If the IPO application is being filed using the independent income of the minor, make sure that the names are listed in the same order as in the Demat account- that is, if the minor is the primary holder and the guardian the second holder, the same order should be followed in the application.

Tax implications

There are no special tax deductions available to a minor. Short-term or long-term gains will taxed like equity investments for an adult, including exclusions and deductions available.

After minor turns 18

The minor can choose to convert his/her minor Demat account to a major one by replacing parent's/guardian's details with their own or close the Demat account to open a new one.