The Demat account is THE first stepping stone into the world of stock trading. With the help of the stock market, investors can trade in several securities including shares, bonds, mutual funds, etc. This is the very first step on your trading journey; to open a Demat and an open trading account.
There are certain considerations, however, that need to be taken into account when it comes to opening a Demat account. To ensure that a Demat account is fully functional, it needs a completed KYC.
A Demat account is used to hold all the investments made by an investor in electronic form. Demat accounts are safe and convenient and offer a user-friendly platform to traders to help them buy and sell securities, via both a computer or a mobile.
But despite all the convenience offered by a Demat account, finance-related aspects always need good security systems in place along with the right verification process. This is where the provision for KYC or Know Your Customer comes into the picture.
The Importance of KYC
Below are some of the reasons why KYC is important in Demat accounts:
1. Verification of Identity:
- KYC documentations usually include identity and address proofs
- These documents help stockbrokers and depositories ensure the authentication of the investor’s identity
- With such an authentication in place, the Demat account will stay safe from being misused.
2. Transparency:
- All transactions that are made in the stock market are linked to an investor’s Demat account
- As an extension of the Demat account, these transactions are also linked to an investor’s PAN card.
- By completing a KYC for a Demat account, investors can pinpoint any potential discrepancies in the financial statements of the account
- This is because the KYC process helps track every single rupee in your financial statement
- As a result, tracking illegal trading activities becomes easier and so does identifying fraudulent investors.
3. Safeguard for the Market:
- The KYC process is also extremely important for the stock market
- When KYC is in place for all Demat accounts, it helps provide a fair and transparent investment environment to investors.
- Identification and removal of fraud players from the market becomes easier with KYC
4. Helps Protect Investments:
- With a completed KYC in your Demat account, your investments will stay protected from fraud.
- Since, thanks to KYC, all the relevant documents related to an investor are on file with your DP or depository participant, investigating any suspicious activity becomes easier
- If such activities are found, then the DP can take action against it quickly to protect your investments.
5. Easier Tax Filing Process:
- Another benefit of completing the KYC for your Demat account comes in handy during the tax filing season
- The KYC process enables the Demat account to record all transactions automatically against your PAN card
- As a result, during the tax season, the ITR form automatically detects these transactions saving plenty of time and effort for you.
Conclusion
Seeing as the Demat account is a non-negotiable aspect of the trading account journey for an investor, it only makes sense that they also follow through on its KYC process. Sure at first KYC compliance might seem a hassle to go through, but the benefits it yields are worth the effort.
From maintaining the integrity of the stock market to protecting and tracking all your investments, the KYC process is undoubtedly a necessity in all respects. With the KYC in place, investors can also deter any potential illegal activity or help authorities investigate suspicious transactions and make recoveries faster.
The whole idea of how to use a Demat account the proper way is incomplete without the KYC in tow. This is why investors also need to ensure that they update their KYC if there are any changes to their contact information.
