Getting started in the securities market: Here are the prerequisites
Before you start investing in shares, debentures and other financial instruments in the securities market, there are certain prerequisites to be met. By ensuring these prerequisites are fulfilled, you can start your journey into the securities market. Here are the essential prerequisites:
- Having a bank account is a must:The first and foremost requirement is that you should have a bank account to handle your financial transactions. It is the account from where funds for investments are deposited and withdrawn.
- Open a trading account or broking account with a SEBI-registered stock broker of a recognised stock exchange: To start trading in the securities market, you need a trading account. This account is used for buying and selling securities on the stock exchanges. It starts with carrying out an KYC process which can be done both offline and online. Additionally, it is mandatory to opt-in or opt-out of nomination in your trading/demat account.
- Open a demat account with a DP: You can open a demat account, managed by a SEBI-registered depository participant (DP) affiliated with NSDL.
Procedure for opening an account: Know Your Client (KYC) Process
KYC, or Know Your Customer, is a mandatory protocol mandated under the Prevention of Money Laundering Act, 2002. It requires individuals to submit Officially Valid Documents (OVDs) as proof of identity and proof of address when opening accounts such as demat, trading, etc. These documents are integral to the KYC requirements.
The KYC is done to prevent money laundering, terrorist financing and other illicit activities. By following the KYC process, SEBI registered intermediaries can ensure that they know their customers' true identities and can verify their backgrounds.
- Submit relevant forms: You need to establish your identity and address by submitting relevant prescribed documents such as PAN card / UIDAI-Aadhar/ Passport/ Voter ID card/ Driving license, etc.
- Fill out the KYC form: After submitting the necessary documents, you'll need to fill out a KYC form provided to you.
- Verification: Once the KYC form is submitted, a unique KYC Identification Number (KIN) is generated and communicated to you by SMS/ email.
- e-KYC option: You can complete the KYC process using the e-KYC facility using UIDAI - Aadhaar/ Digi Locker. You just need to fill the account opening details/ form online on the Stock Broker’s website.. Once all the required information and documents are submitted and verified, you will be required to digitally esign the account opening document electronically using Aadhaar based eSign. After successfully completing the above steps, your account will be activated by the stockbroker.
Note: KYC is a one-time process and is valid across all intermediaries. You need not undergo the same process again while opening an account with another intermediary in the securities market.
Basic services demat account: Ideal for small investors
A basic services demat account is a type of demat account facility which is provided to individual investors who only have one demat account across all depositories in India as well as must be the first holder of the demat. It is designed to provide a cost-effective and accessible option for small investors who hold securities within certain value limits. The value of the holdings shouldn’t exceed Rs.10 lakh each for non-debt securities (like equities) and debt securities, at any point in time.
Power of Attorney in stock trading explained
Power of Attorney (PoA) in the securities market grants authority to a stockbroker or depository participant to manage demat and bank accounts for share transactions. Complying with SEBI guidelines, clients can execute specific PoAs to delegate account operations, enabling smoother share delivery and fund transfers.
As per SEBI guidelines, it is not mandatory to sign and issue a power of attorney. Signing of Power of Attorney is purely optional and voluntary. Also, you can revoke the Power of Attorney at any point in time.
Note of caution: If your stockbroker conducts any unauthorised share transfers in your account, aside from those permitted under POA, promptly address the issue with them. If unsatisfied with their response or if no response is received, escalate the matter to the Depository/Exchange without delay.
Plan ahead: Protect your assets with the nomination facility
A nomination facility enables individual investors to designate a person who can claim the securities held in their demat account in the event of the investor's death. The investor can either opt-in/opt-out of nomination.