When you open the Demat account, the DP / broker will ask you to fill up a KYC form along with your client agreement form. KYC entails some very basic paperwork and submission of necessary documents along with originals for verification.
Let us first understand what is the role of KYC?
KYC norms were put out by the RBI in 2002 and has been adopted by SEBI for all investment related activities including opening of trading account, demat account, mutual fund investments etc. The idea was to cut down on corrupt practices like money laundering, acting as fronts for entities, trading in cash without audit trails, fraud, and financing of anti-national activities.
With the KYC in place, your data gets stored in a central database and you only need to do the KYC once. After that, it is just picked up from the central database by linking your PAN card. KYC helps banks and other financial institutions to track their customer transaction trails. This also helps link all your capital market activity with your bank account and your tax returns and plug any gaps in reporting. SEBI has made KYC compliance mandatory for mutual fund accounts, demat accounts and trading accounts.
Key steps in KYC documentation process for demat account
- The first step is the filling of the KYC form if you are a new investor and opening your demat account for the first time. The application forms asks for details like name, residential address, office address, joint account holder details, account nomination, etc.
- The next step is to present your identity proof. Apart from PAN card, which is mandatory, you are normally asked to submit an additional government authorized proof like passport, driving license, voter ID, Aadhar, etc.
- The third step is to submit your proof of residential address. The document must contain the latest address in the exact format. You can provide utility bills with link documents or other documents like bank statement, company letter, etc.
- Finally, you must submit a copy of your cancelled cheque with the account holder name clearly embossed on the cheque leaf. This is to verify your IFSC code and account details.
While all the above documents have to be submitted as photocopies at the time of KYC, you are required to carry the originals of all these documents for spot verification.
Now you can also expedite KYC with Aadhar based e-KYC
Today it is possible to activate your demat and trading account in less than an hour; thanks to Aadhar based e-KYC. This process is entirely online. The entire process is authenticated by your biometric Aadhar card / mobile linkage with OTP authentication. The e-KYC method is only valid for small transactions. In case you want to make larger purchases in your demat account, there is the additional need for in person verification (IPV) before your KYC is complete and demat account is activated for larger value transactions.
The process of KYC is mandatory before your demat account is activated. This is as prescribed by SEBI and the RBI to prevent instances of money laundering and round tripping of funds. Thanks to e-KYC, the process has become simpler, smarter and also safer.