Demat account for HUF: Benefits and eligibility explained

For those managing family wealth in India, it's vital to know how a Hindu Undivided Family (HUF) can utilise a demat account. Most investors are familiar with individual demat accounts but the HUF demat account offers unique advantages when it comes to family or joint family investments, tax planning, and long-term wealth management.

What is an HUF demat account?

A demat account for a Hindu Undivided Family is an electronic account where, as one legal entity, you can hold investments in shares, mutual funds, and bonds, and other securities. The account is transacted in the name of the Karta, the head of the family, on behalf of all the coparceners (family members). The difference between an individual demat account and a HUF demat account is that an HUF account holds the family investments in one family account (instead of each member having their own account). An HUF demat account has its own PAN and tax identity.

Key benefits of an HUF demat account

1. Tax efficiency

One of the primary reasons families opt for an HUF demat account is tax planning. Since the HUF is recognised as a separate tax entity under Indian law, it files its own tax returns and enjoys the same basic exemption limit as an individual (currently Rs. 2.5 lakh per annum). This allows you to split investment income between your individual and HUF PANs, potentially reducing the family’s overall tax burden. Deductions under sections like 80C, 80D, and others are also available separately for the HUF.

2. Centralised family wealth management

With an HUF demat account, ancestral assets, inherited property, and family investments can be managed collectively. This approach simplifies tracking, reporting, and decision-making for the family’s portfolio. It’s particularly useful for families with multiple generations, as it ensures a unified investment strategy.

3. Joint ownership and succession

All members of the HUF are considered joint owners of the assets held in the demat account. The Karta manages the account, but ownership is collective. In the event of the Karta’s demise, the next senior-most coparcener becomes the new Karta, ensuring continuity and smooth succession without the need for probate or complex legal transfers.

4. Access to a wide range of investments

A HUF demat account allows you to invest in a broad spectrum of financial instruments—equities, bonds, ETFs, mutual funds, and derivatives—using the family’s pooled resources. This flexibility helps in diversifying risk and maximizing returns.

5. Ease of compliance and record-keeping

All transactions, holdings, and tax obligations are centralized under the HUF’s PAN, making compliance, auditing, and record-keeping more straightforward. This is especially useful during tax assessments or when applying for loans against securities.

Eligibility criteria for opening an HUF demat account

Who can form an HUF?

Eligible Families: Any Hindu, Buddhist, Jain, or Sikh family can form a HUF under Indian law.

Members: The HUF comprises lineal descendants of a common ancestor, including sons, daughters (post-2005 amendment), spouses, and unmarried children.

Karta: The head of the family, traditionally the eldest male, but now the eldest member (including females), acts as the Karta and manages the account.

Demat account eligibility

Legal Entity: The HUF must be formally constituted, with a declaration deed and a family tree listing all coparceners.

PAN Card: The HUF must have its own PAN card, separate from the individual PANs of its members.

Bank Account: An active bank account in the name of the HUF is mandatory.

Karta’s Role: The Karta is the sole authorized signatory for the demat account, responsible for all transactions.

Documents required to open an HUF demat account

To open a demat account for your HUF, you’ll typically need the following.

• PAN card of the HUF; PAN card and identity proof of the Karta (Aadhaar, passport, voter ID)
• Address proof of the HUF (bank statement, utility bill)
• HUF declaration deed (listing Karta and all coparceners)
• Bank proof (cancelled cheque or bank statement in HUF’s name)
• Photographs of the Karta
• KYC forms for the HUF and the Karta
• Proof of income (for derivatives trading, if applicable)
• List of coparceners with signatures. There might be a requirement for in-person verification (IPV) of the Karta, either online or offline.

Conclusion

Establishing a demat account for your HUF is not only a compliance-forward step, but it is also an opportunity to transform your family's wealth management and wealth growing strategy. The HUF demat account enables you to consolidate your family's investments, streamline tax affairs, and provide continuity and successors rights. Most importantly, it allows your family to have a single lens for its financial vision and objectives.

If you plan on taking this important step, ensure you have your family documentation completed and in order, and engage a financial advisor to ensure you are maximising the benefits derived from your family's unique structure.