Every company enlisted on the Indian stock exchange is obligated to offer shares in both, physical as well as dematerialised form. In this, physical securities are the actual share certificates that provide information about company shares owned by an investor; whereas, dematerialisation refers to the process of converting the share certificates into an electronic form. Once the shares are converted into the electronic or dematerialised form, they are held in an investor’s demat account. Here is everything you need to know about demat accounts.
What is a demat account?
A dematerialised account, often referred to as a demat account was introduced by the Securities and Exchange Board of India or SEBI in 1996. The SEBI which serves as the country’s capital market regulator issued a decree mandating every investor wishing to trade in equity shares to own securities in dematerialised form. This demat account functions just like your bank account, in which, instead of money, you can hold shares, mutual funds, bonds and similar other investment securities. A demat account especially comes in handy for daily online-traders. You can purchase and sell securities using your demat account.
Depositories and Depository participants
Before we tell you how to open a demat account, it is important for new investorsto first get acquainted with some technical terms about demat accounts. Depositories and depository participants are the two terms that you should familiarise yourself with.
In India, there are 2 SEBI registered depositories which are
- The National Securities Depository Limited (NSDL
- The Central Securities Depository Limited (CSDL)
Your electronic securities are held by these depositories and you can conduct your transactions only through them.
The depository participants (DP) on the other hand are your agents or mediators that work between the investor and the twomaindepositories. As such, aninvestor must open the demat account with a DP.
How to open a demat account?
Here is the 4 step process in which you can open your demat account
Step 1: Choose a depository participant. Financial organizations such as banks, brokers, custodians etc. generally serve as depository participants. For example, Karvy Stock Broking Limited is a DP. The DPs serve as agents of the depository, making their services available for investors
Step 2: Fill up the account opening form and submit photocopies of the necessary documents mentioned in the form.
Step 3: Once you provide your documents, the DP conducts in-person verification.
Step 4: After verifying your credentials, you are provided with your unique account number by the DP, which you can use to access your online demat account
Things to remember while opening a demat account
- It takes about 7-14 working days for your demat account to be opened.
- You must add a beneficiary when you open your demat account.
- You can open more than one demat accounts with different depository participants.
- There is no minimum share balance required for opening a demat account.
The Know Your Customer or KYC compliance is mandatory for opening your demat account. You must provide the following documents to your DP while opening the account:
- Proof of identity: You can provide any government recognized documents such as your PAN card, Aadhaar card, Voter ID or passport as proof of identity.
- Proof of address: You can provide any government recognized documents such as your Aadhar card passport, utility bills, ration card and driving license with your address mentioned on it
- Bank details
Charges for opening a demat account
Now that you know how to open demat account for share market, let us take a look at the charges associated with your demat account.
- Your DP sends you the agreement copy which enlists the terms and conditions, rules and regulations and applicable charges.
- Most DPs typically do not levy any charges for opening an account, while some levy a fixed charge or have refundable charges.
- You also have to pay transaction fees, annual maintenance fees as well as conversion fees if you need to convert your physical certificates into the dematerialised format.
Benefits of opening a demat account
There are several benefits of demat account. They are as under
- All your securities,be it your shares, mutual funds, debentures or bonds can be stored securely in your demat account.
- The cost of the transaction is much lower with ademat account as opposed to physical securities.
- The demat account makes it easy and secure for investors to conduct online transactions.
- There is no restriction on the number of shares you can sell or purchase.
- All the risks associated with physical certificates such as fake or forged certificates, transfer delay, thefts and bad deliveries are eliminated when you hold your securities in your demat account.
- Your investment portfolio’s liquidity is enhanced.
- You can use your demat account conveniently to make electronic settlements.
- Since the paperwork is reduced you can also transfer securities faster.
As you can see, there are many advantages of demat account. If you haven’t yet, it is time to open a demat account.