Starting February 1, 2025, stock trading in India is set to become more convenient for investors with the introduction of a UPI-based block mechanism. This new facility, approved by the Securities and Exchange Board of India (SEBI), will allow traders to purchase and sell shares without the need to deposit funds in advance into their trading accounts. Instead, the necessary amount will be blocked directly from their bank accounts, offering more transparency, better fund management, and enhanced security.
How the UPI Block System Works?
The UPI (Unified Payment Interface) block mechanism is similar to the Application Supported by Blocked Amount (ASBA) system used for IPOs. Under this system, investors can block funds in their bank accounts for trading purposes. They won’t need to transfer money in advance to their stockbroker’s account. This means that the money remains in their bank account, where it can continue to earn interest until the transaction is executed.
This new feature will be an added option for customers of eligible stock brokers. They will be able to choose between the traditional method of transferring funds to their trading account or using the UPI block system. This change is expected to streamline the trading process while providing investors with more flexibility.
No Need for Pre-Payment
One of the biggest advantages of this system is that investors won’t have to pay money in advance to brokers. When placing a trade in the secondary market, the required funds will be blocked in the investor’s account, but they won’t be transferred until the trade is finalized. This feature will provide better fund security and will ensure that traders don’t miss out on interest earnings.
Stock brokers who are classified as eligible based on their size and operations must offer one of these two options: either the UPI block mechanism or a consolidated trading account that combines savings, demat, and trading services.
Increased Convenience and Transparency
Rahul Jain, CFO of NTT DATA Payment Services India, said that with the growing popularity of UPI payments, this new initiative will provide investors with greater transparency, interest income, and easier payment management. The UPI block system will give investors peace of mind, knowing their funds are secure, and will simplify their trading experience.
Additionally, this system helps in preventing the misuse of funds, as the amount remains blocked in the account and is only released once the trade is completed. This added layer of security is expected to further boost investor confidence.
SEBI’s Approval and Timeline
SEBI’s Board of Directors approved the UPI block system for stock trading earlier this year. It will officially be implemented on February 1, 2025. While this system will be mandatory for eligible stock brokers to offer, it will remain optional for investors. This means traders can decide whether they want to use the UPI block mechanism or continue with the current system.
Optional for Investors
Though the UPI block system will be a mandatory offering by brokers, it remains an optional tool for investors. The beta version of the UPI block system will launch on January 1, 2025, for individual investors and Hindu Undivided Families (HUFs) in the cash segment. With its full implementation scheduled for February, investors will have the freedom to explore this new option or stick to the traditional methods.
This move by SEBI is seen as a positive step toward improving the stock trading experience, making it simpler, more secure, and more profitable for investors in the long run.
