The small investor may soon find it easier to get into the midst of stock market action with the upcoming Budget likely to propose demat-linked bank accounts.
According to a senior government official, stock exchanges “have proposed linking bank and demat accounts. This could be for existing as well as for new bank account holders. That is, a bank account holder should be given the option of having a demat account without fulfilling KYC (Know Your Customer) procedures separately. This proposal is under consideration for action in the General Budget.”
If it gets the nod, this proposal will help attract more retail investors to the market, he added.
While a demat account is mandatory for share transactions, it is not for investments in mutual fund units or debt instruments such as tax-free bonds.
According to a stock exchange official, since a uniform KYC framework for all financial instruments is yet to be put in place, the proposed single account system can be useful in avoiding a repetition of procedures.
Two conditionsPresenting the Budget on July 10, 2014, Finance Minister Arun Jaitley had proposed “inter-usability of KYC records across the entire financial sector.” He had said that since opening a bank account required fulfilling KYC norms, the same account holder can be given the option of getting linked to a demat account without completing KYC procedures afresh. For this, he suggested two conditions: payments made or received for share transactions to be done only through the linked bank account, and a cap on transactions at ₹ 1 lakh in a financial year.
As on January 31, there were over 2.31 crore demat accounts in the country. There are two agencies — National Securities Depository and Central Depository Services that provide demat account services through depository participants (DP). Most public and private sector banks have a separate division to work as DP.