A Demat account is necessary when dealing with transaction of securities. As an investor, it is a prerequisite that you have a Demat account to trade shares in the stock market. In India, depositories such as NSDL and CDSL provide free Demat account services. Intermediaries, depository participants or brokers facilitate such services to the investors.
In this blog, you will learn about how a Demat account functions, its benefits, and how to open one.
A Demat account enables investors to store their shares and securities in an electronic format. It is also known as a dematerialised account. During online trading, investors can buy and store shares in their Demat accounts.
Keeping all the assets in one place makes tracking online trading easier for investors. The Securities and Exchange Board of India (SEBI) introduced Demat accounts in India in 1996.
Dematerialisation is the process of converting physical certificates of shares into digital or electronic forms. Previously, carrying and maintaining such documents in the physical form used to get hectic at times. Today, it is a lot easier to keep track of trade transactions this way, and it is also accessible from anywhere at any time.
If an investor wants to convert his shares into electronic format, they can do so with the help of a depository participant.
You can convert your physical certificates once your Demat account is active by submitting a Dematerialisation Request Form (DRF) along with physical securities.
The working process of a Demat account is similar to that of a savings account.
Once your account is active, you can place an order through your online trading account.
You must remember to link your Demat and trading and account. The exchange processes the placed order. After verifying the availability of shares, your account is credited with the shares purchased.
If you want to sell shares, you have to provide a delivery instruction note along with details of the stock. The shares will be debited from your Demat account and the equivalent amount will be credited to your trading account to sell it further.
You have to reach out to a stockbroker to open a Demat account. Next, you will have to fill in an account opening form online that is completely paperless and takes only a few minutes. Then, follow these steps:
Step 1: First, get access to the account opening form.
Step 2: Enter details such as name, PAN, address, phone number and email ID.
Step 3: Furnish your bank details.
Step 4: Provide the relevant KYC documents for identity and address verification.
Step 5: Now, you need to record a short clip of yourself for in-person verification.
Step 6: Using the Aadhaar linked mobile number, e-sign the account opening form.
Once you apply, you will get a confirmation related to the account opening. At the same time, your login credentials will be available.
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Here are the documents you would require to open your account:
You need one passport size photograph.
You can provide your passbook, cancelled cheque or bank account statements of the last six months.
You have to sign on a white sheet of paper and click a picture of it. Make sure your signature is the same as that on your PAN card.
Demat holding report or holding statement, ITR (Income Tax Return) statement, salary slips of three months, net-worth certificate and bank statement of six months
Bank account statements for the previous three months, Aadhaar card, voter ID, driving license or passport
It is mandatory to submit your PAN card. Your signature and photo on the PAN card must be visible.
Demat account charges mostly include account opening fees, annual maintenance charges, safety or custodian charges, transaction charges, Demat charges, etc.
Let’s take a deeper look into it.
The Demat account opening fees levied by DPs (Depository Participants) are generally nominal. Some banks charge Rs.300 to Rs.900 to open a Demat account. However, this fee is waived off if you open a 3-in-1 account – savings account, trading account and Demat account.
While some firms may charge a nominal fee, most waive off the first year annual maintenance charge. Your Demat AMC could be charged quarterly or annually ranging anywhere between Rs.300 and Rs.900. However, note that as per SEBI guidelines, there are no annual maintenance charges for debt securities up to Rs.50,000.
Transaction fees or Demat account brokerage charges are applied for every transaction made by DP. The fees are either charged as a percentage of the value of the transaction or as a flat fee. Usually, something around Rs.1.50 is charged per transaction.
Safety charges or custodian fees are levied as one time or monthly/annual fee for the safekeeping of your shares. Generally, this fee is paid directly to NSDL or CDSL and could be as little as Rs.1.
Your Demat account will be linked to your trading account. This, in turn, will get linked to your bank account. To initiate trading, you require transferring money from the bank to your trading account.
Once you add funds, you can use your trading account to place an order to purchase shares. After your order gets processed, shares will be transferred to your account at the end of T+2 days. Here, ‘T’ denotes the day your order got processed. Since both trading and Demat accounts are integrated, these actions occur seamlessly and promptly.
Additionally, through your trading account, you can place a sell order with the stock exchange to sell a share from your account.
This account is for Indian citizens residing in the country. Anyone in India having a bank account can open a regular Demat account.
A single person opens and manages this account. He/she is a sole account holder, experiencing the associated risks and profits.
It permits up to 3 people to hold the same Demat account together. All the account holders jointly share the risks and profits.
This account is for Non-Resident Indians (NRIs). However, it doesn’t facilitate fund transfer abroad. You need to link it with an NRO bank account.
This type of account is also for NRIs. It permits money transfer abroad. However, you have to link this account to an NRE bank account.
A commercial setup or business may open this account that will operate in the company’s name.
A Demat account offers a nomination facility in accordance with the process mentioned by the depository. In case of an unfortunate event, the appointed nominee will get the Demat account’s shareholding.
An individual can access his/her Demat account anywhere, anytime, through a laptop or a smartphone.
Besides shares, this account can hold various assets such as government securities, exchange-traded funds, mutual funds and bonds.
Often, a company brings forth variations in its stocks, such as stock split and bonus issue. If you hold the shares of such a company, these changes will get automatically updated in your Demat account.
This enables an investor to keep an unlimited number of shares so that he/she can trade in volumes. Besides, it is easier to monitor the share details in a Demat account. While trading online, it facilitates prompt transfer of shares.
Shares existed as paper-based certificates prior to the launch of Demat accounts. If an investor held a company’s shares, he/she had to maintain multiple paper certificates. Such were prone to forgery, loss, theft and tampering. Additionally, the transfer of shares needed lengthy paperwork that was vulnerable to delays and errors. Through a Demat account, an investor can store the shares in a secure and safe digital repository.
Let’s see why having a Demat account is important:
Be cautious, aware and well-read while availing a Demat account to protect your investments and maximise your returns. With the dynamics of the Indian financial market, it is imperative to have trading and dematerialised accounts.
If you are planning to start your investments journey, make sure to open a Demat account first. Happy investing!
Ans: Anyone who is a resident of India and 18 years of age is eligible to open a Demat account for trading. However, applicants should have all necessary documents required to open this account.
Yes, a Demat account is secure. CDSL (Central Depository Services Limited) and NSDL (National Securities Depository Limited) govern all dematerialised account. They send notifications, emails and alert messages for transactions performed. It is a secure process to hold your shares as it prevents forgery, loss of physical shares and tampering.
Ans: You need a Demat account to hold securities in a digital format. This account is necessary for equity delivery trading. You will also require it while participating in an initial public offering (IPO) since the allotted shares are credited to this account.
Ans: Yes, it’s legal for an individual to have more than one Demat account A person can have multiple dematerialised accounts in his or her name. However, an investor can have only one dematerialised account with a broker or a depository participant. If you wish to have another account, you need to open it through another DP or broker.
Ans: In India, a DP or a depository participant generally serves as an intermediary between the authorised depository (CDSL and NSDL) and an investor. A DP can be a financial institution, a broker or a bank.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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