Zerodha policies and procedures RMS inactive account penny stocks AML

Zerodha policies and procedures: the mandatory broker policy

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Zerodha’s policies and procedures is the SEBI-mandated broker policy document, published at zerodha.com/policies-and-procedures/, that sets out the operating rules between Zerodha and its clients: the risk management system, charges and penalties, margin and pledge rules, penny-stock and illiquid-security restrictions, account closure and inactivity, business-continuity arrangements, and the anti-money-laundering policy. Every SEBI-registered stock broker must publish such a document and have clients acknowledge it at account opening, which makes it the binding rulebook behind the day-to-day operation of the account.

Most clients never read it, then discover one of its clauses the hard way: a position squared off without a call, an Rs 50 charge they did not expect, an account marked inactive after a year of not trading, or a penny-stock order that will not go through. Each of those is a documented policy, not an arbitrary act, and the policies-and-procedures document is where it is stated. This article explains what the document is, why SEBI mandates it, and walks the clauses that affect a retail client most: risk management and square-offs, charges and penalties, margin shortfall, penny stocks, inactivity and closure, business continuity, and the AML policy.

Conflict-of-interest disclosure. This guide is published by the WebNotes Editorial Team for informational purposes and is written independently. WebNotes operates a Zerodha account-opening referral programme, disclosed on the pages that carry the referral link; this guide does not carry it and earns no referral commission from the procedure described here.

What the document is and why it is mandatory

The policies-and-procedures document is one of the mandatory account-opening disclosures SEBI requires of every registered stock broker . Its purpose is to state, upfront and in one place, the terms on which the broker will exercise discretion over a client’s account: when it can refuse an order, when it can square off a position, what it charges, how it treats inactivity, and how it closes an account. A client acknowledges the document as part of the account-opening kit, so the rules are agreed at the outset rather than imposed silently. This sits alongside the other mandatory disclosures, the risk disclosure document and the Zerodha investor charter , which together form the disclosure backbone of the broker relationship.

Zerodha’s version is a living document, updated as exchange and SEBI rules change; the published version carried a last-updated date of 31 July 2025. It is organised into the main trading terms, a business-continuity management policy, an anti-money-laundering and counter-financing-of-terrorism policy, and links to the corporate-governance policies. The clauses below are the ones a retail client meets most often.

Risk management and square-offs

The risk-management system (RMS) clause is the one with the sharpest teeth. The policy states that Zerodha may square off a position without a prior margin call when margins fall short, and that a charge of Rs 50 plus GST applies for each RMS square-off. Intraday positions are squared off from a set time per segment, with equity intraday square-off beginning at 3:20 PM, so a client who does not close an intraday position before the cut-off has it closed for them. The broader mechanics of when and why RMS acts are covered in how RMS rejection works on Zerodha and the margin-call timeline at Zerodha .

The policy is explicit that Zerodha does not fund client positions: a debit balance that remains unpaid can lead Zerodha to liquidate the client’s stock to recover it. This is the contractual basis for the auto-liquidation that catches clients who carry an unmet shortfall, and it is why a margin-shortfall SMS demands prompt action, as set out in how to interpret the margin-shortfall SMS .

Charges and penalties

The charges clause gives the policy’s financial teeth. A delayed payment, an unpaid debit balance, is charged at 0.05 per cent per day on the debit balance under the policy. The funds clause sets the payment rails: UPI pay-in is free, a payment-gateway transfer costs Rs 9 plus GST, and NEFT, RTGS and IMPS are available, while cash, cheque and demand draft are not accepted; payouts are processed within 24 hours, and funds added on a given day cannot be withdrawn the same day. The Call and Trade backup desk, under the business-continuity policy, carries a charge of Rs 50 plus 18 per cent GST per executed order. These figures connect to the wider Zerodha charges picture and the stamp duty on Zerodha and STT and CTT on Zerodha levies that the client also bears under the policy.

For futures and options, the policy requires 50 per cent of the margin to be maintained in cash for overnight positions, the cash-collateral rule that the 50-50 cash-collateral rule page explains. The penalties clause is the contractual source of these requirements; the operational consequence of breaching them is the RMS action described above.

Margin, pledge and shortfall

The margins clause states that Zerodha does not provide client funding, and sets the pledge charge at Rs 30 plus GST per instrument. It illustrates the haircut mechanism with a worked example: a 10 per cent haircut on Rs 1 lakh of pledged stock yields Rs 90,000 of collateral margin. The clause confirms that an unpaid debit can lead Zerodha to liquidate pledged or held stock. The pledge process itself is documented at margin pledge on Zerodha and how to pledge holdings for margin , and the margin framework at margins and leverage at Zerodha . The policy is the contract; those pages are the procedure.

Penny stocks and illiquid securities

The orders-and-instruments clause restricts trading in illiquid and penny stocks. Basket orders are not allowed on penny stocks, market orders are disabled on illiquid stock options, and the cover order is unavailable on BSE and on stock options. The AML policy reinforces this: Zerodha monitors trade patterns in illiquid securities and may seek a client’s clarification on unusually high volumes. These restrictions are a risk-management measure, not an inconvenience for its own sake; thinly traded securities are the vehicle of choice for manipulation, and the broker is obliged to watch them. The behavioural counterpart inside the trading app is the penny-stock block nudge on Kite , which prompts a client before a penny-stock trade.

Inactivity, deregistering and account closure

The closing-your-account clause sets out three things a retail client should know. Closure is effective seven working days after the request and the settlement of all dues and securities. An account with no trading for 12 consecutive months is marked inactive, and reactivating it requires re-verification of KYC, the process covered in how to reactivate a dormant Zerodha account . And Zerodha reserves the right to decline to repeatedly re-open accounts for clients who close and re-open frequently. The full closure walkthrough is at how to close a Zerodha account , and the option to keep trading while closing only the demat is at how to close the demat and keep trading .

The AML policy adds a separate suspension route: persons debarred or suspended by a regulator cannot trade, and Zerodha is not liable for blocking such persons. This is the deregistering-and-suspending mechanism, distinct from voluntary closure, and it connects to the voluntary freezing facility under the corporate-governance policies that lets a client temporarily block their own online trading account.

Business continuity and the backup desk

The business-continuity management policy commits Zerodha to maintaining service and protecting data during disruptions. It states that hosting runs at Netmagic and Amazon data centres with real-time backup servers, and that parallel servers and multiple backup copies cover network or disk failures. The alternative-communication arrangement is the Call and Trade desk, the backup channel when the platforms are unreachable, carrying the Rs 50 plus 18 per cent GST per executed order noted above. This is the contractual underpinning of Zerodha’s uptime posture, complementing the security controls described on Zerodha cyber security .

The AML and CFT policy

The anti-money-laundering and counter-financing-of-terrorism policy follows SEBI’s AML master circular. It sets a KYC-based client-identification process, with document verification and beneficial-ownership checks before account opening, and an annual KYC-updating process. Clients are categorised into high, medium and low risk. The policy monitors complex or large transactions lacking an apparent economic purpose, retains records, and reserves the right to block an equivalent amount and report abnormal or non-genuine transactions to the exchange, typically within one day. This links to the central KYC records registry and the wider KYC registration agency framework that governs how a broker identifies and re-verifies its clients.

How the document fits the broker disclosure set

The policies-and-procedures document does not stand alone. It is one of three mandatory client-facing disclosures, alongside the risk disclosure document that warns of trading risk and the Zerodha investor charter that states the client’s rights and the broker’s service commitments. Grievances arising from any of them route through the Zerodha grievance redressal mechanism and, if unresolved, the SEBI SCORES and Smart ODR platforms. Reading the policies-and-procedures document is the way a client learns the rules before, rather than after, one of its clauses applies to them.

See also

External references

References

  1. Zerodha, Policies and Procedures (RMS square-off charge of Rs 50 plus GST; delayed-payment charge of 0.05 per cent per day; pledge charge of Rs 30 plus GST per instrument; 50 per cent cash for F&O overnight; UPI pay-in free and gateway Rs 9 plus GST; closure effective seven working days; inactive after 12 consecutive months; penny-stock and illiquid-security order restrictions; Call and Trade Rs 50 plus 18 per cent GST) (last updated 31 July 2025).
  2. Zerodha, Business Continuity Management Policy (Netmagic and Amazon data centres; real-time backup; Call and Trade backup desk) (as of 20 June 2026).
  3. Zerodha, AML and CFT Policy (KYC-based client identification; high/medium/low risk categorisation; transaction monitoring; reporting of non-genuine transactions to the exchange within one day) (as of 20 June 2026).
  4. SEBI (Stock Brokers) Regulations, 1992, as amended (obligation to disclose policies and procedures to clients).
  5. SEBI, Master Circular for Stock Brokers on AML/CFT obligations.

WebNotes Editorial Team prepares factual reference articles based on publicly available regulatory documents and broker disclosures. WebNotes is not affiliated with Zerodha Broking Limited. Policy terms, charges and thresholds are subject to change; verify the current policies and procedures at zerodha.com/policies-and-procedures/ before acting.

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Frequently asked questions

What is the Zerodha policies and procedures document?
It is the SEBI-mandated broker policy document at zerodha.com/policies-and-procedures/, setting out the operating rules between Zerodha and its clients: risk management, charges, margin, penny stocks, account closure, inactivity, business continuity and anti-money-laundering policy. Clients acknowledge it at account opening.
Why must a broker publish policies and procedures?
SEBI requires every registered stock broker to disclose its policies and procedures to clients as part of the mandatory account-opening documents, so that the terms governing risk management, charges and closure are stated upfront and acknowledged rather than imposed silently later.
When does Zerodha treat my account as inactive?
Zerodha’s policy marks an account inactive after no trading for 12 consecutive months. Reactivating it requires re-verification of your KYC. The policy also lets Zerodha decline to repeatedly re-open accounts for clients who close and re-open frequently.
What charge applies if Zerodha squares off my position?
Under the policy, the risk management system can square off a position without a prior margin call when margins fall short, and a charge of Rs 50 plus GST applies per RMS square-off. A delayed debit balance is charged at 0.05 per cent per day.
Does Zerodha restrict penny-stock trading?
Yes. The policy restricts trading in illiquid and penny stocks: basket orders are not allowed on penny stocks, and market orders are disabled on illiquid stock options. Zerodha can refuse or restrict orders in such securities under its risk-management policy.
How long does closing a Zerodha account take?
Account closure is effective seven working days after the closure request and the settlement of all dues and securities. The detailed steps are in the account-closure guide; the policy document sets the seven-working-day rule and the conditions for refusing frequent re-openers.
Does the policy cover anti-money-laundering rules?
Yes. The document includes an AML and CFT policy following SEBI’s master circular: KYC-based client identification, risk categorisation into high, medium and low, transaction monitoring, and reporting of suspicious or non-genuine transactions to the exchange, typically within one day.

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WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

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WebNotes is independent. No relationship with any broker, registrar or bank named in this article.