The First-time Investor’s Guide to a Demat Account

If you wish to invest in the stock market, then it mandatory that you have a demat account. Without a demat and a trading account you cannot do trading in the stock market. There are many things which you need to keep in mind while opening a demat account and also while using one. If you are investing for the first time in the stock market, then this first timer’s guide to demat account will be beneficial for you.

What is a Demat Account?

A demat account or a dematerialization account is an account which holds all your securities, shares, bonds, exchange-traded funds and mutual funds in a digital format. Just like a bank account which holds your physical money in an electronic form as savings, a demat account holds all your investments in an electronic form. This eliminates the need to hold physical copies of them.

The process of converting your investments into the digital form is called dematerialization.

Why do you need to open a Demat Account?

You need to open a Demat account to buy and sell securities in the market. A demat account is opened with a Depository Participant from a Depository.

What are Depositories and Depository Participants?

Depositories are agencies who hold your securities in the digital format and enable you to make transactions. In India, there are two depositories registered under Securities and Exchange Board of India. They are Central Depository Services (India) Limited (CDSL) and National Securities Depository Limited (NSDL).

A Depository Participant is a middleman between the depository and the Investor. To use the services of a depository you need to do it via a Depository Participant.

What are the benefits of Opening a Demat Account?

Opening a demat account has a lot of benefits for an investor. They are as follows:

1. A demat account is a much better option to save your investments from all kinds of damages such as forgery, theft, loss etc. They are held securely in the online account.

2. There is no stamp duty as the certificates are digital.

3. The transaction cost is lesser than stamp duty, hence a demat account is an economical way to hold your investments.

4. The dematerialization process involves minimal paperwork.

5. Settlements happen much faster as the mode becomes electronic.

6. A demat account enables you to sell any number of shares you want, even if it is just a single unit.

What Are the Fees Charged for Opening a Demat Account?

The demat account charges are very minimal. Mostly the DPs do not levy any charges for account opening. There are some who offer refundable charges or a fixed charge.

Other than the fees to open an account, there are additional demat account charges. You also have to pay other fees such as transaction costs, annual maintenance fees, charges for conversion of physical certificates to electronic format etc.

What Is the Process to Open a Demat Account?

If you have a question as to how to open a demat account, then follow the below steps:

• Choose a SEBI registered Depository Participant

• Fill the account opening form

• Submit the required documents

• Comply with the physical verification by the DP

• Receive your account ID and number

• Get access to your account

You should not forget to add a nominee to your demat account. Your demat account takes a few days to open and there is no requirement to maintain a minimum balance share.

What Kind of Documents Do You Need to Open a Demat Account?

The depositories follow a customer identification process, Know Your Customer or KYC. You need to fulfill the KYC norms for a smooth account opening process. Under this procedure, the documents required for opening a demat account are as follows:

• Proof of Identity- PAN Card, Passport, Voter ID or Aadhar card

• Proof of Address- Passport, Utility Bills, Bank Statements or Driving License

• Bank Account Number and Statements

Once you have a demat account, it opens a huge avenue for you to trade in shares or do any other kind of investments.

 

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