A demat account, also referred to as dematerialized account is similar to a bank account. The only difference is that in a demat account, you store or hold securities like bonds, mutual funds, shares, debentures etc. So, a demat account serves as a great alternative to hold your securities, which you would otherwise do in the form of a physical certificate.
A company that’s listed in stock exchange can offer securities in both modes – dematerialized or physical. Dematerialization is simply the process of converting share certificates into electronic form. In this article, we will discuss the role of a demat account and how to open an account.
Benefits of a Demat Account
Here are some of the advantages of having a demat account.
- Transaction costs when dealing with demat accounts are lower than physical ones.
- Demat accounts are safer and you wouldn’t have to worry about safety of bonds, shares and debentures.
- Investing in securities online is a simple and easy process when you have a demat account.
- You can sell your shares whenever you want.
- With physical certificates come risk like fake certificates, theft, transfer delays, forgery, etc. With a demat account, you do not face such risks.
- Settlements can be done easily and conveniently with an online demat account.
- Transferring your securities is also a faster and easier process when you have a demat account.
Know Your Demat Account
When you have a demat account, you need to understand two terms. One is depositories and the other is depository participants (DPs). The National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL) are the two SEBI-registered depositories that are responsible for holding all your securities and also allows you to make your transactions.
Depository participants (DPs) are the agents that function between the depository and the investor. So, you would have to open an account with a DP, for you to get all the facilities that are offered by these depositories.
Steps to Open a Demat Account
- Choose a good depository participant (DP) that could be a broker, financial institution, bank, etc.
- Fill up the form provided and submit all the necessary documents (Identity proof – Aadhaar, Voter ID, PAN, Passport and Address proof – bank statements, passport, utility bills, etc).
- An in-person verification will be conducted by the depository participant.
- Once the verification is done, the depository participant will then give you an ID or account number that can be used to access your account online.
Once you’ve opened your account, the agreement terms will be sent to you. There maybe a few charges to open an account. You would then need a trading account to buy and sell your securities. There are a number of banks like Axis, ICIC and HDFC that will help you to open your trading account.