In this article, we are going to learn about Demat account, how to select the best Demat account, the steps to open a Demat account, what are the things to check before opening a Demat account, what are the documents required to open a Demat account and how to transfer shares from one Demat account to another.
What is the Demat Account?
A Demat account provides a facility to hold shares in electronic format. Earlier if people used to buy shares they used to get a share certificate, a physical document that proved that they have a share. Now you do not require any physical proof. You need a Demat account it will hold your shares
in electronic format.
You can see the number of shares on your mobile phone, on your email, and on the online application. The word Demat is the short form of ‘dematerialized’. What do you mean by this? Anything which is available in physical form has been materialized.
A Demat account is very similar to a bank account. Most of the bank accounts which you operate now can operate through your mobile phone, on your computer, or laptop. While a bank account holds your money in electronic format, a Demat account holds shares/securities.
A Demat account allows you to transfer and receive shares without using actual physical share certificates. Earlier people used to get physical share certificates but now you do not require any physical share certificates.
How to Select the Best Demat Account?
Opening a Demat account is the first step toward investment in equity markets in India. So if you want to buy shares, if you want to invest in equities you need to have a Demat account. Without a Demat account, you cannot even think of buying shares
However, there are many options available now to open the Demat account and this is where the choice comes into the picture. You need to choose the best option which definitely requires a bit of homework. To open a Demat account, you need to choose a depository that would be best suited for you to trade in the share exchanges.
Now depository is an intermediary. A depository is a firm, a company, an institution, or a group of people who are authorized by SEBI to buy or sell shares on your behalf. So depository is an intermediary between the investor and the market.
So if you want to open a Demat account you need to select a depository which means, the institution through which you will open the Demat account. You have to select the best Demant account for trading to begin your journey in investing shares.
How to Open Demat Account Online?
For investing, one needs to have a Demat account for trading. It is very easy
to open a Demat account especially online.
Many people ask how to trade in share markets in India. It begins by having 3 things in place. You need
- Demat Account
- Bank Account
- Trading Account
A Demat account holds shares/securities. Brokers have tied up with either NSDL or CDSL (both are depository). Like a bank account, the Demat account has to be open with an appropriate institution
So NSDL or CDSL are the two depository participants and brokers are the companies through which you can open your demand account. You must have heard about many of these brokers.
Steps to Open Demand Account
Many investors became worried when they hear that they have to open a demand account. But there is nothing to worry about. Like a bank account, opening a Demat account is extremely easy and fast. It involves 4 steps.
Step 1: Choose a depository participant (DP) to open the account with a beneficial owner (BO) account is opened with the depository.
Are There Any Form Filling And Documents Required For Opening Demat Account?
Yes, an account form is required to be filled in with all the investor details together with supporting documentation copies of
- proof of address,
- proof of identity,
- proof of income etc
- a pan card is mandatory to open the account
All the documentation should be presented in original as well as for the verification.
What Happens After This Step? Will Someone Verify Your Information?
Yes, you will be provided with a copy of the rules and regulations as well as the necessary charges to be paid to your depository participant (DP). A person verification will be conducted by a representative of the depository participant (DP) to confirm all the details and documentation provided by the investor.
When Will The Demat Account Be Opened?
Once approved and documentation is submitted, your Demat account is opened and operational it may take up to two weeks.
Once your account is set up, you can use the details to access your Demat account online and begin the online training.
What Are The Things To Check Before Opening Demat Account?
As a Demat account holder, please remember you would need to know the charges of Demat account annual maintenance. There will also be a transaction fee that will be collected for debiting securities to and from the
Many brokers charge a lot of money for annual account maintenance. Also while doing transactions they will charge certain fees. Both the annual maintenance fees and transaction fees may be waived off for a limited period. But, every service provider will charge them once the free period is over.
These fees differ and every depository participant (DP) has a different structure. So all these fees will depend upon the type or the kind of depository participant, you are entering into a contract with.
Also do remember that the Demat account can be opened with zero balance of shares. This means it does not require a minimum balance of shares to be maintained in a Demat account.
What Are The Documents Required To Open Demat Account?
Here is a broad list of documents that can be used as proofs for Demat Account Opening.
- PAN card
- Voter ID
- Driving license
- Income tax returns
- Electricity bill
- Ration card
- Telephone landline bill
- Bank passbook
These documents will be required to meet the proof of identity and proof of address. So there are two things which you need to give proof of identity and proof of address.
Proof of identity – For this, one can use a PAN card, Voter ID, Passport, Driving license, Income tax returns, Electricity bill, etc. ID cards with the applicant photo issued by the government.
Proof of address – For this, you can use a ration card, passport, voter ID, driving license, bank passbook or bank statement, etc. Verified copies of electricity bills, telephone bills (residence), identity cards, or a document with an address issued by the government are also accepted, among others.
How To Transfer Shares from One Demat Account to Another
Demat account handles the transfer of shares from one account to another. One of the reasons you transfer a Demat account is one needs to change the agent. Another might be if the customer wants to merge his Demat account into one or divide the account into several others.
One thing to remember is that the transfer of the Demat Account does not have any implications. The transfer of shares from one Demat account to another can be carried out either by manual transfer or by online transfer. It is handled by two Depositories in India – NSDL & CDSL.
How to Close Demat Account?
Almost everyone has an idea of how to open a Demat account. But very few people know how to close it. This is a common issue with many investors deal with. They end up opening multiple Demat accounts without realizing that there is an annual fee for each account.
To close the Demat account, you need to make sure that there are no shares in your Demat account and that there is no negative balance. Further, you need to download the Demat account closure and then submit the form
to the depository. Your Demat account will be suspended within a week.
What is Dematerialization
In order to reduce the risk associated with share trading in paper format, dematerialization was introduced in the Indian financial market. It is the process through which an investor’s physical share certificate is converted to an electronic form that is maintained in an account with the depository participant.
This method is not only used for shares but also for instruments like bonds. At present, you can hold all investments in a single account. India is embracing the Demat system successfully and further, there are plans to facilitate the training of almost all financial assets in Demat format in the future.
So this is a great initiative and a great move that the government is doing and it’s better to have your shares in electronic format than to have them in the physical format. Overall it’s a good win-win situation for both the customer as well as for the market.
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