Individuals interested in stock market investments need to ensure that they comply with the KYC (Know Your Customer) requirement as per the guidelines of the Securities Exchange Board of India (SEBI). As per the recent update on KYC, stock investors need to link their Aadhaar with their PAN (Permanent Account Number) before March 31, 2023. Otherwise, they will not be allowed to trade as their PAN cards will be rendered inoperative.
KYC compliance is mandatory under the Prevention of Money Laundering Act, of 2002. Two modes for KYC are Physical KYC and e-KYC (digital KYC).
What is Digital KYC in the Securities/Stock Market?
Stockbrokers ask investors to fill up a KYC form along with a demat and trading application form. KYC can be explained as the Customer Identification Process. KYC establishes an investor’s identity and residence. It verifies that an investor is a person who they say they are through relevant supporting documents and In-Person Verification (IPV).
Earlier SEBI-registered stockbrokers followed different KYC processes to get the documents required for demat account opening. The SEBI has already simplified the KYC process with Uniform KYC. Now it allows completing the KYC process in the securities market digitally also.
Thanks to digital processes to open an online demat account, investors can now complete the verification process via video KYC, called e-KYC. Investors can complete IPV via a recorded video or a scheduled video call with the broker.
Benefits of e-KYC include:
- No need to visit the broker’s office
- Convenient paperless account opening process
- Digital authentication
- Start stock investing or trading quickly
The Process of Digital KYC with Stock Brokers
Digital KYC is a part of the Demat/Trading account opening process with a stockbroker in the financial market. The KYC process involves submitting essential documents. It is a one-time process to be completed with the SEBI-registered stockbroker.
The steps to open a demat account and complete KYC digitally are as follows:
- Step 1: Choose the stockbroker registered with the SEBI and depositories in India. Investors can choose from a discount or full-service discount broker. Demat and trading account opening fee is nil with reputable discount brokers offering annual brokerage plans for share trading services.
- Step 2: Fill out the demat and trading account opening form on the broker’s website.
- Step 3: Enter a valid Permanent Account Number (PAN). Investors are required to provide a mobile number linked to the Aadhar card. The broker will send an OTP (One Time Password). Verify the OTP for further processing.
- Step 4: Input personal details, like full name, age, residence, etc.
- Step 5: Upload the soft copies of your identity proof and address proof.
- Step 6: Submit the form with the KYC documents for the verification process.
- Step 7: Complete the IPV process. It is easy to complete IPV by recording a short video of 30 seconds while saying the statement given for self-declaration by the broker.
- Step 8: Digitally Sign the form using the Aadhaar-linked mobile.
Following these simple steps with a stockbroker, one can complete the e-KYC process. With KYC, the investor’s data is secure in a central database. After that, the system can pick up the data from the central database using the PAN. The process may vary slightly with different brokers.
Once the details provided and documents uploaded are verified by the broker’s representative, the account gets activated. The broker will receive the unique ID of the online demat account and trading account.
KYC is an important aspect while dealing in the securities market to ensure safe investing/trading transactions. Opening a demat account and completing the KYC process is much easier now in the online trading system following a 100% digital process with trusted discount brokers registered with the SEBI.