In this day and age, demat accounts have become a necessity to invest in securities, as people can no longer trade in physical securities. Hence, they need to have a demat account in which they can hold their securities in a dematerialised or electronic form.
That said, there are many benefits of having a demat account, for example, it allows you to trade from anywhere with just a laptop and an internet connection. While demat accounts offer several advantages, it is important to understand the compliance requirements for such accounts.
Compliance Requirements for a Demat Account
Here are the compliance requirements that you need to follow for a demat account:
1. Provide Required Documents
To open demat account, you must furnish proof of identity (PAN card; driving license; passport; Aadhaar card; voter ID; identity cards issued by the central government or any state government or their departments or statutory/regulatory authorities), proof of address (Aadhar card, voter ID, passport, driving license, utility bills, a bank statement, ration card, registered lease or sale agreement of residence, or flat maintenance bill).
Besides, you need to provide bank account proof, such as a bank statement or a cancelled cheque. In addition, recent passport-sized photos must be provided and a copy of your signature should be furnished.
2. Know Your Customer (Kyc) Compliance
KYC is extremely important for a demat account. To meet this requirement, you have to provide your personal information and go through identity verification.
Through this compliance, the regulators intend to prevent money laundering, fraud, and other illegal activities. KYC compliance helps regulators to ensure that investment activities are legitimate. Besides, the flow of funds can be tracked thanks to KYC compliance.
3. Reporting Of Transactions
This compliance makes it necessary for investors to report all transactions they have undertaken using their demat account. In case they have purchased or sold securities, transferred securities, or made any other transaction, then they have to report it to ensure transparency.
4. Regulatory Disclosures
When regulatory authorities mandate that retail investors have to comply with certain disclosures, you need to comply with them. Under such requirements, you have to disclose information regarding your shareholdings, investments, and any other financial activity required by regulatory authorities.
5. Compliance With The Regulations Issued By The Sebi
The stock market regulator, the Securities and Exchange Board of India (SEBI), issues regulations and guidelines from time to time. These regulations pertain to the operations of demat accounts, trading practices, protection of investors, and market integrity.
The objective of such regulations is to provide protection to retail investors and maintain the integrity of the market. As a retail investor, you must comply with all such regulations and guidelines.
What Happens If You Do Not Follow Compliance Requirements For Your Demat Account?
The repercussions for not following compliance requirements for demat accounts can be severe. Hence, you must follow the requirements explained above.
For instance, in 2022, the National Securities Depositories Limited (NSDL) issued a circular, which said that demat accounts would be suspended if they did not comply with certain KYC attributes.
Conclusion
In case your account gets suspended or frozen, then it may be tedious to get it activated again. Besides, how will you buy or sell securities with a suspended/frozen demat account? The problems do not end there.
In the unfortunate event of your demise, your legal heirs may find it difficult to access your investments if your demat account is frozen or suspended. Hence, for your convenience and for that of your family/heirs, it is important to meet all the compliance requirements pertaining to your demat account.
