A Demat account, short for a dematerialized account, is a form of electronic account that holds financial securities such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). A Demat account eliminates the need for physical certificates traditionally used to verify ownership, invest, and transfer securities. In India, a Demat account is a necessary component for trading in the stock market. In this comprehensive guide, we explore everything an investor should know about Demat accounts.
Why do you need a Demat account?
The primary purpose of a Demat account is to hold financial securities electronically in a safe and secure manner. As an investor, you cannot buy or sell securities without a Demat account. It is a requirement for investors to have a Demat account, and it is mandatory for stock trading in India.
Types of Demat accounts
There are two types of Demat accounts:
- Regular Demat Account: A standard account for retail investors who hold securities for personal investments.
- Corporate Demat Account: This type of account is used by companies to hold securities on behalf of their employees, who are granted shares as part of their salary package.
Demat account opening process
To open a Demat account, an investor needs to follow the below steps:
Choose a Depository Participant (DP): A DP is an authorized agent who provides Demat account services. An investor can choose any of the DP registered with Central Depository Services Limited (CDSL) or National Securities Depository Limited (NSDL).
Fill up the account opening form: An investor needs to visit the official website of the DP to download the account opening form. This form includes personal information, bank account details, and a signature. The investor must attach a few identity and address proof documents to initiate the account opening process.
Submitting the form: Once the form is filled and documents are attached, the investor needs to submit the form, along with a cheque for the account opening fee.
Verification of documents: The DP will verify the submitted documents and verify the investor’s PAN card number before approving the Demat and trading account.
Receiving Demat account and trading account details: Once the account is opened, the investor will receive the Demat and trading accounts’ details. The investor can use these details to start trading.
Fees and Charges
Opening a Demat account incurs certain charges, such as account opening fees, account maintenance fees, transaction fees, annual maintenance fees, and others. These charges may vary depending on the Depository Participant (DP) and the type of account. The fees and charges will be levied annually, and the investor must pay them to keep the account active.
Uses of a Demat account
A Demat account provides various benefits to investors such as:
- Safe and secure storage of financial securities: A Demat account ensures the safe and secure storage of financial securities by eliminating the need for physical certificates.
- Easy transfer of securities: An investor can easily transfer securities from one Demat account to another without the need for paperwork.
- Access to online trading: A Demat account is necessary to access online trading platforms. An investor can buy and sell securities online using a Demat account.
- Reduction in the risk of fraud: A Demat account reduces the risk of fraud associated with physical certificates.
