KYC (KNOW YOUR CUSTOMER) NORMS FOR OPENING DEMAT ACCOUNT

In 2002, the Reserve Bank of India laid down the Know Your Customer (KYC). The Securities and Exchange Board of India (SEBI), the regulatory body for demat trading in India has adopted the KYC norms for all equity-related investments and online trading including the opening of demat account, trading account, etc.

The primary intention for KYC norms was to reduce corruption in equity trading and eliminate money laundering, cash trading without audit trails, terror financing, etc.

When an investor submits all the requisite documents for KYC, the comprehensive data gets stored in a central database. The customer is required to do the KYC documentation once, and it can be verified later from the central database by linking your PAN Card.

Know Your Customer (KYC), as the name suggests, helps brokers and DPs to know and verify the credentials of an investor wanting to open a demat account and trade in equity. It also ensures that the funds invested in and earned through a trading and demat account are traceable through proper banking channels. As the brokers obtain all the necessary documentation, it becomes easier to track any fraudulent investor or transaction. All your capital market transactions are linked with your bank account and PAN Card; as PAN Card is the primary document for filing tax returns, it helps to plug any gaps in financial reporting. This ensures to keep the demat trading a safe experience.

1.Account Opening Form

• Appropriately filled Demat Account Opening Form (Joint /Individual) along with Application Form for Joint (Joint /Individual).

• Photograph of each account holder or signatory to be attached on the form and signed across.

2.Proof of Identity - POI (list of applicable documents)

• PAN card along with photograph (mandatory). Although there are a few exceptions to the

  PAN Card rule –

  • - Traders relating to specific income slab as per section 139A
  • - Traders resident of Sikkim state
  • - Transactions done on behalf of Central or State governments or by officials appointed by Indian courts

• The applicant should submit any one of the following:

  • - Valid Driving license
  • - Voters ID card
  • - Passport
  • - Unique Identification Number (UID) (Aadhaar)

• Identity card/document with the applicant's Photo, issued by any of the following: Central/State Government and its Departments, Professional Bodies such as ICAI, ICWAI, ICSI, Statutory/Regulatory Authorities, Public Sector Undertakings, Bar Council etc., to their Members, Public Financial Institutions, Scheduled Commercial Banks, Colleges affiliated to Universities; and Debit cards/Credit cards issued by Banks.

3.Proof of Address - POA (list of applicable documents)

• Valid Driving License

• Ration Card

• Voters Identity Card

• Passport

• Utility bills like Telephone Bill (landline only), Electricity bill or Gas bill - Not more than three months old.

• Sale Agreement of Residence or Registered Lease

• Bank Account Passbook/Statement.

• Proof of address issued by either of the mentioned: Bank Managers of Scheduled Commercial Banks/Multinational Foreign Banks/Scheduled Co-Operative Bank/Gazetted Identity card/document with address, issued by any of the following: Central/State Government and its Departments, Statutory/Regulatory Authorities, Professional Bodies such as ICAI, ICWAI, ICSI, Public Sector Undertakings, Bar Council etc., to their Members, Public Financial Institutions, Scheduled Commercial Banks, Colleges affiliated to Universities.

4.Other Documents

• Bank Account Details – An original cancelled cheque that bears your printed name, Account number, MICR code, IFSC Code, and Bank and Branch details.

• It is requisite to provide proof of income or the applicant’s net worth if they want to invest in Derivatives (futures and stock) or the commodities market. This can be provided by either of the following documents –

  • - IT Acknowledgement Copy
  • - Form 16
  • - Bank statement for the last six months
  • - Stock Holding statement
  • - Certificate provided by a verified Chartered Accountant that confirms your net worth
• If the primary holder is a minor, then the account opening form should have the details of the parent or guardian along with their signature, personal information, and respective documents.
• A Power of Attorney (POA) to be appointed by an NRI investor for carrying out transactions.

The photocopies of all the documents mentioned above have to be submitted for opening any demat account or trading account. The original documents have to be carried for a spot or in-person verification.

A demat account enables an investor to opt for a safe platform to trade in equities and diversify his investment portfolio. Prior to 1996, investing in shares entailed a lengthy procedure with cumbersome paperwork. It involved the hassle of managing paper-based share certificates and was a costly affair. Dematerialization of shares and the regulation of the online platform through SEBI, has made trading in shares easy and accessible for every individual who wishes to invest in the diverse instruments.

SEBI has made KYC compliance compulsory to open a demat account, trading account, or to invest in mutual funds. Ensuring KYC compliance makes share trading a safe and accountable atmosphere. Negative elements are eliminated from the process, making it a reliable platform for honest and genuine investors.