KYC for Demat Account – Importance and Documentation

Indian stock markets are not new to scams and fraudulent practices. From the Harshad Mehta scam of 1992 to the Ketan Parekh fraud of 2008, every scam has resulted in retail investors losing their hard-earned money. With lack of accountability and news of stock investments funding wars, it was important to safeguard the integrity of the markets and keep them fair and unbiased. This is why the Securities and Exchange Board of India (SEBI) introduced the concept of KYC or Know your client/customer. KYC is a mandatory requirement when opening a Demat account. It ensures that every penny that makes its way to the Indian stock market is accounted for and has a paper trial.

So, if you are planning to start investing in the stock market, then the first step is to open a Demat and trading account. These accounts help investors hold and trade securities in an electronic form. However, to open a Demat account, you must first complete the KYC process. But exactly, what is KYC? What are the mandatory KYC attributes for a Demat account? Keep reading to know everything about Demat account KYC with m.Stock!

What is KYC for a Demat account?

KYC helps brokers and regulatory agencies verify the identity of the investor who wants to open a Demat account and start trading/investing. It is a one-time process through which all investor data is collected and stored in a common database. In India, a government agency, CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) stores all KYC information. This database is then utilised by all four major regulators i.e., RBI, SEBI, IRDAI and PFRDA.

Why is KYC essential for opening a Demat account?

All stock market transactions are linked through your PAN card and bank account. KYC identifies any gaps while reporting your finances, as every penny coming in and going out of your Demat account can be tracked. This has reduced illegal trading activities as every transaction is recorded, making it easy to identify fraudulent investors. KYC goes a long way in ensuring that the stock market remains safe from fraudulent practices, illegal funding/sponsoring, black money etc.

Steps involved in documentation of KYC for Demat account

To simplify the process of completing KYC while opening a Demat account, we have listed the below steps for you:

• Filling Out The KYC Form: For opening a Demat account, you need to fill in the KYC form. You will have to provide information like name, occupation, salary scale, office and residential address, nominations etc.
• Submission Of PAN Card: It is mandatory to submit your PAN card. You will also need to submit government-authorised identity proof, like license, passport, or Aadhaar card details.
• Proof Of Residential Address: Next, you will need to submit evidence of the given residential address. To support your residential proof, you can submit utility bills like electricity, gas/cylinder bills, etc.
• Submit Bank Account Details: Finally, for verification of your bank details, you must submit a cancelled cheque or the first page of your passbook, containing relevant details of your account.
• Online Verification Process: eKYC or online KYC for Demat accounts that are Aadhaar based simplifies and helps complete the KYC process in a couple of minutes. If your Aadhaar is linked with your current mobile number, then you can verify the same using OTP. However, for Aadhaar-based verifications, there is an investment upper limit of ₹50,000 in a year in mutual funds. Therefore, for transactions of greater volume and amount, you will need to undergo in-person verification, which involves taking a picture or recording a live video of yourself.

What are the mandatory KYC attributes for a Demat account?

SEBI has issued guidelines that have mandated each Demat account holder to update their details in the KYC form before 30 June 2022. Failing to update your KYC will render your Demat account dormant, preventing any transaction. The circular issued by SEBI mandates updating 6 KYC details to ensure hassle-free trading/investing experience. These details are as follows:

• NameOne of the primary details that needs to be updated is your name. However, since you must have already stated your name during the process of opening your account, you can now simply retain it, given that there is no change in your name, either major or minor. However, even if there is the slightest change, you must update it in the depository or broker database.
• AddressYou must have provided your address as well while undergoing the procedure of opening your Demat account. Similar to updating a name, you can retain it if there is no change. But, if there is a change in your residence after opening your account, you will need to update the same with the relevant new address.
• PANPAN card has now become a mandatory requirement while opening a Demat account. However, its disclosure was not mandatory earlier. Therefore, if you opened your account without your PAN, you must update the same in the depository’s database.
• Mobile NumberAn SMS or notification is sent to the registered mobile number whenever there is any transaction in the Demat account. Hence, you must update your phone number in the KYC details.
• Email IDYour account statements and other details are sent to your email address regularly. Hence, it is crucial for your broker to have your valid email ID on record.
• Income RangeLastly, you need to update your annual income in the depository record. This is required for both individuals and non-individuals with different income options as below:Individuals (Form 9)Non-Individuals (Form 11)Below ₹1 lakhBelow ₹20 lakhs₹1 lakh to ₹5 lakhs₹20 lakhs to ₹50 lakhs₹5 lakhs to ₹10 lakhs₹50 lakhs to ₹1 crore₹10 lakhs to ₹25 lakhsMore than ₹1 croreMore than ₹25 lakhs 

Considering the above information, you can minimise the risk and safely enter the stock market by updating the key attributes of KYC as required by SEBI. To begin your investing journey, opt for a zero brokerage trading platform like m.Stock which offers free trading across products for life. So, go brokerage-free for life and open your Demat account now!