With rising financial awareness, more and more people are investing in financial assets like stocks and bonds. Investing in the capital markets also helps in diversifying your portfolio. Over the long term, equities have been known to deliver decent returns. Along with proper financial knowledge, one needs a trading account, demat account and bank account to invest in the equity markets.

What is a trading account?

When you invest in the equity markets, you buy shares in exchange for money. The shares bought by the investors are stored by certified depositories. These depositories provide unique demat accounts to investors that store their stock holdings securely. When an investor sells a share, it is removed from the demat account. The shares are stored in the demat account and the money comes from the bank account, then what role does the trading account play? The trading account is the common link between the demat account, bank account and the investor. The buying and selling of shares are facilitated by the trading account. If you want to trade in equity shares, you mandatorily have to create a trading account. If you subscribe to a public offering, you don’t need a trading account as the shares, if allotted, automatically goes to the demat account. But you will always need a trading account to sell those shares or buy other shares.

How to create a trading account?

To get a trading account, you will have to zero in on a broker. Brokers are of two types—discount and full-service. Basically. The categorisation is of the type of accounts they provide. Discount brokers provide no-frills trading accounts that allow just buying and selling of shares without any value-added services. Full-service brokers provide research, recommendations, financial data and a host of other services with the trading account. Once you have decided the type of broker, consider its credibility in the market. Stock market frauds are not very common in India but are not unheard of either. Along with the credibility, take into account the proximity to the broker’s office and interface of the trading software. The software interface is an important factor as a clumsy interface can be an irritant while trading.

After finalising the broker, you can either visit their office and ask for a physical form or fill up an online form on their website. A representative from the brokerage firm will help you with the application process and inform you about the required documents. Most brokers offer a demat-cum-trading account. Without a demat account, you can trade only in options and futures, but if you want to trade in equities, you need to have a trading account.

Documents required

Like most other services, you need to submit a proof of address and a proof of identity to create a trading account. PAN card is compulsory for opening a trading account. For proof of identity, you can submit a passport, voting ID, driving license or Aadhar card. The address can be verified by submitting documents like telephone bill, electricity bill and water bill.

A photocopy of the PAN card, address proof and identity proof has to be submitted, with the original for the manual KYC process. Some brokers also carry out a telephonic or manual verification process. The trading account is activated by the broker 3-4 days after the application and documents are accepted. If you do not want to submit the physical copies of the documents, there is an alternative method.

E-KYC process

If you want to avoid the manual KYC, you can opt for the E-KYC method through the Aadhar card. For the E-KYC method, you will have to ensure that your Aadhar card id linked to the PAN card and your bank account. The mobile number linked to the Aadhar card should be the same as the mobile number submitted in the trading account application. The Aadhar verification is done online through a one-time password. You will also have to upload a copy of the PAN card and a cancelled cheque. After the submission of the documents, you will have to verify yourself either through video conferencing or visiting the nearest branch of the broker.

Conclusion

With the advent of the internet, the opening of the trading account as well as investing in the markets has become easy. Brokers have simplified the process of trading, which is also a reason for increasing participation in the capital markets.