How to open a trading account online

Many say opportunity and uncertainty come together in the stock market. Look closer and you also might find an investment opportunity in these uncertain times.

You wouldn’t want to miss that bus just because you don’t have a trading account, right? You may postpone the idea given the ongoing movement restriction. But opening a trading account is a simple process and can be done completely online.

The market regulator SEBI (Securities and Exchange Board of India) has, from time to time, issued various circulars to allow investors to complete the KYC process online. Now, there are many stock brokers and merchant bankers who facilitate opening the trading account online.

You need to ensure that the intermediary — stock-broker, sub-broker or merchant banker et al – with whom you open the account, complies with Know Your Customer (KYC) and Customer Due Diligence (CDD) policies.

One can either use the intermediaries’ web portal or the app (if any) to complete the KYC process with the help of technological tools or platforms such as digilocker (for submitting valid original digital documents), IMPS (for penny drop bank validation), VIPV (video in-person verification) and eSign (to digitally sign a document).

Validating the documents

The KYC process includes obtaining proof of identity (PoI) and proof of address (PoA) from the customer.

One can use the Digilocker facility to submit these documents online. Digilocker is a flagship initiative of the Ministry of Electronics & IT under the Digital India programme. Once a Digilocker account is opened, an individual can access documents or certificates issued to them by government departments participating in the system. You can also permit others to access your documents in the Digilocker. The issued documents in Digilocker are deemed to be at par with original physical documents and are acceptable for the KYC process.

The Digilocker account can also be created completely online. All that is required is an Aadhaar number and the registered mobile number.

Digilocker, Aadhaar and driving license (DL) are the only documents that can be used as both PoI and PoA and can be validated, according to Nithin Kamath, CEO at Zerodha, a stockbroking company.

The Permanent Account Number (PAN) cannot be used as PoI when using the Digilocker. “Because the Digilocker services for PAN do not share the photo of the person, which is required for any document being used as PoI,” says Kamath. PAN can also not be used as PoA because it does not carry the address details of the individual.

While providing PAN is not mandatory for KYC process, it is mandatory for doing transactions in the securities market.

The documents submitted must be authenticated by affixing the signature. The eSign mechanism of Aadhaar shall be accepted in lieu of a wet signature on the documents provided by the customer. eSign is an online electronic signature service in India to facilitate an Aadhaar holder to digitally sign a document using an OTP (one time password).

The other details that need validation are the bank account details, which will be verified by the penny drop mechanism or any other mechanism. Under penny drop, some trivial amount will be deposited into your bank account by which the intermediary can establish that you own a KYC-compliant bank account.

In addition to this, the intermediary would also collect your basic details such as the mobile number and e-mail id which will be verified using any mechanism including OTP.

Remember, if you want to open a trading account with a merchant banker (for example, ICICI Securities), and you hold a bank account with its banking arm (here, ICICI Bank), you can skip submitting the documents using Digilocker and verification of bank account details. This is because you are already a KYC-compliant customer with the bank.

Recently, SEBI also came up with a circular further easing the KYC process in which an individual can bypass Digilocker if he/she submits Aadhaar, which can be verified through UIDAI’s (Unique Identification Authority of India) authentication/verification mechanism.

Further, submission and validation of PoI/PoA documents through Digilocker or Aadhaar verification mechanism are only among the many ways of the online KYC process. The intermediaries may have other means to allow customers to submit KYC documents online.

Validating the individuals

The in-person verification which is usually the last part of a KYC process can also be done through a video, which is called video in-person verification (VIPV). This is to ensure that you yourself are opening the account and also that the photograph submitted with the documents matches with the person in the VIPV.

There are various ways in which VIPV can be performed. It would be in a live environment and shall include random questions and responses from the customer. It includes displaying the official document, KYC form and signature or confirming the OTP sent.

IPV/VIPV is not mandatory all the time. A recent SEBI circular says that IPV/VIPV would not be required when the KYC of the investor is completed using the Aadhaar authentication/verification of UIDAI. The circular also states that it is not required when the KYC form has been submitted online and the documents have been provided through Digilocker or any other source which could be verified online.

It was understood that once the KYC process is finished, the trading account will be activated not later than 24 hours.

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