The Securities Exchange Bank of India (SEBI) regulates the Indian stock market. The regulatory authority makes rules and regulations and ensures that each registered broker in the stock market follows these rules strictly. These rules include demat and trading account opening process also.
To complete the demat account opening process individuals need a valid Permanent Account Number (PAN) card with other KYC (Know Your Customer) documents.
Why Do Investors Need a Demat Account?
Investors interested in stock market investments require a demat account with a registered stockbroker. As per the rules of the SEBI, it is a mandatory account.
Demat accounts were introduced in 1996 and have expanded the accessibility of the stock market to retail investors also. The following are the functions of a demat account:
- Safe Digital Wallet: Investors can hold financial securities like stocks, bonds, mutual funds, insurance policies, government securities, etc., in a demat account.
- Fast Trade Execution: Thanks to a demat account, online trading transactions can be processed instantly as securities’ ownership is transferred electronically.
- Dematerialisation: A demat account is required to convert physical share certificates into digital form seamlessly.
- The solution to the odd lot issue: Unlike offline trading systems, investors can buy even one share using a demat account.
Can Demat Accounts Can Be Opened Without PAN Card?
Yes, it is possible but only in case of exceptions.
Following the SEBI mandate issued in 2007, a PAN card is a mandatory document to submit to the broker to open a Demat account.
- If it is a retail investor’s demat account, individuals need to submit a valid PAN card in their name.
- In the case of a corporate demat account, a PAN card in the name of the company and an individual PAN of the director or signatory authorities in the company are required.
- If it is a joint demat account, both account holders need to submit the PAN card.
- If individuals intend to name their kids as a nominee on their demat investments, submitting their kid’s PAN cards is legally necessary. The income tax department allows parents to apply for a PAN card for their children also. If the child is less than 18 years, they can apply on their kid’s behalf.
In almost every case, a PAN card is necessary to open demat account online and invest in stock markets. However, there are a few exceptions also.
- Indian citizens belonging to scheduled tribes (STs) of North East India can open a demat account without a PAN card. The maximum threshold to investment amount from them is Rs. 50,000 in the stock market using this demat account. To avail of this relaxation, individuals need to produce valid ID proof as official evidence that they belong to the ST category and are residents of northeast India.
- Entities that fall under the Section 12 of the SEBI Act, 1992 of the SEBI need not submit a PAN card to open a Demat account. However, it is a limited-purpose beneficiary owner account. Brokers can freeze these accounts if the PAN card is not submitted within one month of the demat account opening.
Importance of PAN Card
A PAN card is the sole identification of all financial transactions regardless of the amount made by the PAN holder. It allows the income tax department to consolidate all the financial transactions an individual makes.
An individual can possess only one PAN card. Once generated, PAN does not change throughout life. Even if an individual moves abroad, the number will remain the same for the person. It makes it easy to record all financial transactions.
Thus, opening an online demat account requires a PAN card mandatorily. Approach a discount broker to open a paperless demat account following a 100% digital demat account. Reputable discount brokers registered with the SEBI and central depositories in India can offer a free demat and trading account to their subscribers. Also, there will be no annual maintenance charges (AMCs) associated with a demat account.