Applying For An IPO In A Minor’s Name: Rules And Regulations

Investing in an Initial Public Offering (IPO) can be a great way to build long-term wealth, and many parents consider doing so for their children. A common question that arises is, can I apply IPO in minor account? Yes, you can apply for an IPO in a minor’s name, but there are specific rules and regulations that must be followed. Understanding the application process, documentation, and how IPO allotment works for minors can help you navigate this opportunity effectively.

This article will guide you through the rules and regulations for applying for an IPO in a minor's name and explain how IPO allotment works in this context.

Can I apply for an IPO in a minor account?

Yes, parents or guardians can apply for an IPO in a minor’s name. However, certain steps must be followed to ensure the application complies with the rules and regulations set by the Securities and Exchange Board of India (SEBI). The process is similar to applying for an IPO in your own name, but there are additional considerations since minors are not legally permitted to manage financial transactions on their own.

Key requirements for applying in a minor's name:

Demat account in the minor's name: To apply for an IPO, the minor must have a Demat account in their name. This account will hold the shares once they are allotted. A parent or guardian must open this account on behalf of the minor, acting as the minor’s custodian.

PAN card for the minor: A valid PAN card in the minor’s name is required to apply for the IPO. This is essential for all investment-related transactions.

Bank account linked to the minor’s Demat account: The minor must also have a bank account linked to their Demat account. Parents or guardians can open a joint account with the minor and link it to the Demat account for seamless transactions.

Application process: The parent or guardian applies for the IPO on behalf of the minor, using the minor's Demat and PAN details.

How to apply for an IPO in a minor's name

1. Open a Demat account and a bank account for the minor

The first step to applying for an IPO in a minor’s name is to open a Demat account in the minor’s name, with the parent or guardian acting as the custodian. You’ll also need to open a bank account, which can be a joint account with the minor, linked to the Demat account. Both of these accounts are essential for the IPO application process.

2. PAN card for the minor

A PAN card is mandatory for all IPO applications. To apply for an IPO in a minor’s name, the minor must have their own PAN card. You can apply for a PAN card for the minor online or at your nearest PAN service centre.

3. Apply for the IPO

Once the minor has a Demat account, a linked bank account, and a PAN card, the parent or guardian can apply for the IPO. When applying, use the minor’s Demat account and PAN card details. Ensure that the bid amount and bank account details match those registered in the minor's name.

4. Allotment of shares

After applying, the shares will be allotted based on the IPO allotment process. The shares will be credited to the minor's Demat account if the application is successful. It’s essential to understand how IPO allotment works, which we'll cover next.

How IPO allotment works for minors

How IPO allotment works is a crucial part of the IPO process, whether the application is made in a minor’s name or an adult’s name. IPO allotment is conducted through a lottery system for retail investors, where eligible investors are randomly selected to receive shares.

Here’s a breakdown of how IPO allotment works:

Categorisation: Investors are categorised into different groups such as retail, high net-worth individuals (HNIs), and institutional investors. Minors fall under the retail investor category, with a maximum investment limit of Rs. 2 lakh.

Application size: The size of the application (i.e., the number of lots applied for) influences the chances of receiving an allotment. For retail investors, applying for a single lot generally increases the chances of receiving an allotment, as oversubscription often leads to allotments being based on a lottery system.

Oversubscription: When an IPO is oversubscribed, more applications are received than the shares available. In this case, allotment is done randomly through a lottery, and not all applicants will receive shares.

Refund process: If the application is unsuccessful, the amount paid will be refunded to the linked bank account.

Credit of shares: Once the allotment is finalised, the shares will be credited to the minor’s Demat account.

It’s important to note that applying for multiple Demat accounts for the same minor will not increase the chances of allotment, as SEBI strictly regulates multiple applications from the same PAN number.

Key considerations when applying for an IPO in a minor’s name

Before applying for an IPO in a minor’s name, there are several important considerations to keep in mind:

1. Legal limitations

Minors cannot operate Demat accounts independently. The parent or guardian must manage the account until the minor reaches 18 years of age. At that point, the account can be transferred to the minor, who will then have full control over it.

2. IPO oversubscription

In cases where the IPO is oversubscribed, the chances of allotment are lower. The parent or guardian should manage expectations and understand that receiving shares is not guaranteed.

3. Tax implications

Any income generated from the sale of shares in a minor's account is taxed in the hands of the parent or guardian. Be sure to account for this when planning investments in the minor’s name.

4. Investment goals

Applying for an IPO in a minor’s name should be part of a larger investment strategy. It’s essential to align the IPO investment with long-term financial goals for the child, such as education or wealth creation.

Conclusion

Applying for an IPO in a minor’s name is possible, but it requires careful adherence to rules and regulations. Parents or guardians must manage the process and understand how IPO allotment works to ensure a successful application. By following the necessary steps, you can start building a strong financial foundation for your child’s future.