Guidelines and rules are a must in stock markets as they help protect the interest of investors. Gone are the days when investing in markets was just a small group of people with esoteric knowledge or moneyed people. Markets have emerged as an investment avenue even for the middle class in India. Investing in the stock market is no longer considered as an activity which is similar to gambling. Today, investing in markets is accessible to everyone. This is because the use of technology in markets has addressed many fears and concerns of investors over the years. One of the innovations which has served investors well after years of trading in physical shares is that of Demat accounts. It has made investing simple, secure and convenient.
Over the years, Demat accounts have eliminated different kinds of fears and concerns of investors. With Demat accounts, investors need not be anxious about fake share certificates or worry about securely storing their investment certificates. Besides this, a Demat account also helps monitor all investments– be it stocks, bonds, government securities, exchange traded funds and units of mutual funds - in one place. This ease of investing, the expectations of high returns and the plethora of opportunities in financial markets attract many investors to the stock market.
Many investors often lose interest in the stock market as they are unaware of the rules and guidelines that govern the markets. This is a fallacy which must be avoided.
In the emerging world, there is no democratic investment universe like the Indian stock market. Hence, it is important to understand the basic rules and guidelines that will help you make effective investment decisions. Take a look at them below:
Firstly, to trade and invest in the market, you need to open a Demat account and a Trading account.
Now, let understand the guidelines issues by Securities & Exchange Board of India (SEBI) for the opening of Demat accounts:
SEBI’s guidelines for opening a Demat account are clear and depository participants have to comply with the same while opening a Demat account.
When an investor approaches a stock broker or a depository participant to open a Demat account, SEBI’s requires an application form to be filled and signed, and submitted along with a photograph and the necessary documents.
The depository participant cannot accept an incomplete form or a form without the applicant’s signature. The signature is stored digitally with the depository for the record and for further validation. The applicant can also choose a nominee and fill out their details on this same form
For an investor to apply for a Demat account, it is necessary to verify his/her identity. For this reason SEBI requires the applicant’s PAN card and address proof to be submitted. As address proof, the applicant can submit their UIDAI – AADHAR card, passport, voter’s ID or any such currently approved address proof. The address proof and PAN details are used to complete the know-your-client (KYC) process before opening the Demat account, as per SEBI guidelines.
The depository participant also asks for details of the bank account of an investor. Investors are expected to furnish a cancelled cheque or a statement of their bank account, issued by the bank. These bank details are linked to the Demat account when it is opened. When securities held in that Demat account are eligible to receive dividends and interest payouts, this linked bank account is credited with such cash payouts. The bank account can also be used to pay the charges and fees associated with the Demat account. For this, the investor also signs a standing instruction to that effect.
The depository participant conducts in-person verification of documents furnished by investors. as investors have to complete the KYC process. After this process, documents are uploaded on the system of National Securities Depositories Limited or Central Depositories Services Limited, as the case may be. The applicant’s signature is also uploaded here.
A unique identity is given to every Demat account as per SEBI’s guidelines for Demat accounts. This 16-digit client ID is issued by a depository participant after the same is generated in the NSDL or CDSL system.
An investor is allowed to open a demat account as a single applicant. Opening a Demat account jointly with another individual is also an option. SEBI allows investors to open multiple Demat accounts.
SEBI guidelines for Demat account charges also require depository participants to share a list of all applicable fees or charges with the investor at the time of opening the account. The depository participant seeks written consent about the same from the investor. These charges can also be changed by the depository participant later, by providing 30-day notice. SEBI also asks depository participants to share the structure of all current charges, once in a year, and the changes made therein.
Every investor should register their mobile number and Email Id while opening a Demat account. This helps protect them from fraudulent activities on their Demat account.
After a Demat account is opened, the depository participant shares the client master report with the client/investor. This report lists all the details that the investor shared while opening an account. It is the investor’s responsibility to review the report and point out discrepancies or errors, if any, to the depository participant for rectification.
So, the next time you plan to invest or a friend of yours intends to invest in the stock market, make sure you are aware of these guidelines and rules. These guidelines and rules act as protective shields to help you thwart unforeseen unfavourable events, which may impact your returns from the stock market.
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