Finance Frontier

To begin your investment journey, you will need a trading account. According to the Securities and Exchange Board of India (SEBI), a trading account is compulsory for buying and selling financial securities online. 

Without a trading account, you might have to depend on middlemen to place your trades. Alternatively, you can visit stock exchanges in person to place a trade. But since it is not possible to visit stock exchanges physically every time, a trading account is essential. 

A trading account opens the door to a wide range of financial instruments like shares, derivatives, bonds, and Exchange-traded funds (ETFs). With a trading account, you will have a wide range of financial instruments at your fingertips.  

Like a Demat account is essential to hold securities in electronic format, a trading account is essential for placing trades. To open a trading account in your name, you need a stockbroker. Just like opening a Demat account online, you will need to complete the KYC (Know Your Customer) process when applying for a trading account.

In this article, we will discuss the significance of the KYC process when applying for a trading account.

Demystifying the KYC Process

SEBI has made KYC mandatory for depository participants and stockbrokers in India. KYC includes a set of guidelines for Demat and trading account providers. When talking in the context of a trading account, stockbrokers must follow the guidelines to confirm the account holder’s identity. The KYC process also allows the stockbroker to check the applicant’s eligibility for a trading account. With the help of KYC, stockbrokers can confirm that trading account applicants are legitimate individuals. When the identity and eligibility of the applicant is checked beforehand, there are fewer chances of fraud. KYC also helps stockbrokers reduce the risk of money laundering, identity theft, and other malicious activities.

While stockbrokers are obligated to follow KYC guidelines, individuals must also provide relevant information. A stockbroker can deny service to an individual not offering KYC details. For the same rationale, you will be asked to follow KYC guidelines and provide relevant information while applying for a trading account. It is better to complete the KYC process during online trading registration. It will allow you to unlock all trading account features and start investing in securities. You will be asked to provide several details and documents as part of KYC guidelines. Some reliable stockbrokers might allow individuals to upload KYC documents online. 

However, after submitting the KYC documents, you might be called for an in-person verification.

Here are the documents required for the KYC process of a trading account:

• The trading application form submitted to the stockbroker is part of the KYC documents. It has your name, address, phone number, email address, and other details.
• You must provide a legitimate document to prove your identity. It could be an Aadhaar card, passport, driving license, or other ID proof. It is crucial to note that a PAN card is mandatory for opening a new trading account in India.
• You must provide a legitimate document to prove your address. You can offer a utility bill, ration card, or any other document that proves your address.
• Stockbrokers also ask for a blank cheque for opening a new trading account. The blank cheque contains the IFSC code that helps identify the applicant’s bank account.

Demystifying the eKYC Process

You can also do EKYC (Electronic KYC) for online trading registration. Aadhaar-based eKYC has reduced the time duration for both applicants and stockbrokers. You can submit the details for eKYC online on the stockbroker’s website. The applicant will be asked for their Aadhaar card and registered phone number. You will need to confirm the OTP (One Time Password) received on the registered phone number. Once you verify your Aadhaar card and mobile number, the remaining details are accessed from the UIDAI database. It is a fast and secure process for individuals in need of an instant trading account. 

Usually, you can skip the in-person verification process with eKYC. The verification process can be completed over a video call. Even though the eKYC process is quick, there are some limitations. For instance, some stockbrokers limit the investment value for individuals with only eKYC. It is better to consult with your stockbroker and provide all details required to complete the KYC process. If the stockbroker insists on in-person verification, you must visit their office. Remember to carry original documents for in-person verification.

Demystifying the reKYC Process

Now that you have understood KYC’s significance, it is essential to know about reKYC (Re-Know Your Customer). Personal details of trading account holders might change with time. For instance, an individual’s address or phone number might change with time. To ensure they have accurate and updated details, stockbrokers invest in the reKYC process. 

SEBI has made it mandatory for stockbrokers to collect updated customer information at regular intervals. Consider reKYC as a periodic review from the stockbroker to update your details. The reKYC process is usually quick and can be completed online. While there is a fixed period for reKYC, stockbrokers can ask for it anytime. For instance, they can ask for reKYC from a customer with suspicious trade activities.

In a Nutshell

KYC guidelines are mandatory for stockbrokers offering trading accounts to investors. Investors should also provide accurate details to stockbrokers for the KYC verification process. 

If you are new to trading, you can open both Demat and trading accounts for free with a trusted company like Religare Broking Limited. However, don’t forget to complete the KYC process.