Demat accounts are fairly similar to bank accounts. However, the key difference is that they hold securities and financial instruments instead of money. These accounts have become the preferred method of storing securities and are regulated and maintained by depositories such as the NSDL or CDSL in India, and traders generally avail their services through brokerage firms.
Demat accounts have significantly accelerated the process of trading and greatly reduced the risk of theft, loss, or damage to physical paper-based trades since their inception. They are an essential prerequisite for those seeking to enter the arena of trading in securities or other financial instruments. The procedure to open Demat accounts is fairly uniform among banks, brokerage firms, and other financial institutions that provide platforms for online trading.
Documents Required to Open an Online Demat Account:
Following are the required documents to open an online Demat Account:
- Proof of Identity: A driving license, Voter ID, UID (Unique Identification Number) or PAN card.
- Proof of Address: Passport, Voter ID, Aadhaar card or a ration card.
- Proof of Income: A copy of an Income Tax Return Acknowledgment.
- Proof of Bank Account: A cancelled cheque leaf.
- PAN Card: Possessing a PAN card is mandatory if you wish to demat account with certain exceptions such as those who are exempt from having to apply for PAN.
- 1-3 Passport Size Photographs
Is it mandatory to submit a PAN Card while opening a Demat Account?
As per a circular issued by the Securities and Exchange Board (SEBI) of India on April 27th, 2007, submitting your PAN card is mandatory when opening a Demat account regardless of investment size or objective. Both the holders, in case of a joint account, will have to submit their respective PAN cards for evaluation before opening an account.
An NRI or a person of Indian origin will also have to submit a PAN card when opening an online DEMAT account. Exceptions are only made if you are prevented from obtaining a PAN Card due to unforeseen circumstances, where you may be allowed to open a ‘limited purpose Beneficiary Owner account’ if you hold securities in a physical form and are only interested in selling them.
Conditions for the Operation of Certain Accounts
Any accounts opened before December 31st, 2006, would have been suspended for debit until the depository participant has verified their PAN details. This can be done by producing the original PAN card at the time of verification of the photocopy provided earlier. In the case of joint accounts, all account owners must furnish their PAN cards for verification.
Some Conditional Exemptions To This Rule are as follows:
- If you are applying for an account as a HUF, association of persons, partnership firm, or unregistered trust, the PAN of the respective body must be obtained even if the beneficiary account is in the name of one or more of its members. For a registered trust, corporate body, or minor, the PAN must be obtained when accounts are opened under their names.
- UN agencies or other bodies that are exempt from paying taxes from the country are exempt from the PAN requirement when opening an online Demat Account, subject to the verification of their status. This also applies if you are an investor residing in the state of Sikkim on verification of your place of residence.
- Entities registered with SEBI under Section 12 of the SEBI Act 1992 may be allowed to open beneficiary accounts without PAN for 30 days after which the accounts may be frozen in the event of failure to provide a PAN card.
- Exceptions are also made if you belong to the scheduled tribes of some areas in the North East of the country such as Mizoram, Arunachal Pradesh, Tripura, Nagaland Manipur, as well as some parts of North Cachar Hills in Assam, you may be allowed to open Demat accounts if the sum you plan to invest does not exceed Rs. 50,000.
You can open a Demat account with IIFL if you are interested in investing in mutual funds or other financial instruments. IIFL’s cutting-edge trading platform lauded research team, intuitive interface, and low account charges could provide you with the perfect start for a successful entry into the world of trading.
