The first step to start investing in Indian stock market is to open a brokerage account with a Securities and Exchange Board Of India (SEBI) registered broker or with a sub-broker.
To invest and trade in financial products, one is obliged to have 3 types of accounts with a broker. The types of accounts are:
- Trading Account – This account is used for placing orders (buy/sell shares) in a particular stock exchange, be it BSE, NSE or any other exchange in the country.
- Demat Account – Demat account is used to hold shares in dematerialized form. Through a Demat account, an individual receives/transfers shares when he/she buys/sells shares through trading account.
- Bank Account – An account in which investors/traders’ savings or current account is linked to their trading account. Bank account is used for funds transfer during buy/sell process.
Role of Depositories
While brokers guide us on opening and maintaining our trading accounts, respective depositories are responsible for opening and maintaining our demat accounts.
Who are Depositories or DP?
National Securities Depository (NSDL) and Central Depository Services (India) (CDSL) are the two mandated custodians of dematerialized securities in India.
In order to maintain both trading and demat accounts of clients, most established brokers in India have registered themselves as Depository Participant (DP). A DP acts as an agent of the depositories.
Those brokers who do not register themselves as DP, provide only front-end trading account and use depository services of other financial entities.
Common Account Opening Procedure With A Stock Broker:
a). When approached, the broker would provide the prospective client with a KYC (Know Your Client) form, which he/she would have to fill up. After the client fills all the personal details in this form, the broker registers the client to a KRA or (KYC Registration Agency)
b). Attach address proof and identity proof
c). Provide original PAN card
d). If the investor wish to trade in futures and options market (F&O), he/she needs to provide 6 months account statement of the existing bank account
e). A canceled cheque of the bank account one wants to link to the trading account
f). 3 passport size photographs
What if a client is KRA verified and visa-versa?
KRA is a SEBI registered agency responsible for centralization of KYC records in securities market.
During brokerage account opening process, brokers are required to get all the proofs, like PAN, address proof etc. What’s good about KRA verification is that when an individual wishes to open another account with another broker, he/she would not have to submit all the documents all over again during the process.
To make it more simple, once the client has done KYC with a SEBI registered intermediary, the client need not undergo the same process again with another intermediary registered under the regulator.
The introduction of KRA by SEBI has extensively simplified account opening procedure, that too obliging to all the KYC norms.
But it is important to mention here that the usage of uniform KYC is restricted to only SEBI registered entities. Which means, even if a person is KRA verified by submitting all the document proofs to a broker, and later wants to open a bank account, he/she will have to provide fresh KYC to the bank as banks are not regulated by SEBI.