Basics of Demat Account

Everything You Wanted to Know About Demat Accounts

Are you new to the world of stocks? Drawn to the constantly changing number and how people earn money from it? Thinking about investing in the stock market? The first and most important step to start trading is getting a Demat Account.

If you are considering investing in the Share market and researching about the same then you must have come across this term – “Demat Account”, but what is Demat account, why you need it, what are its advantages and how you can get a Demat account, knowing all these things is very important.

To help you learn about Demat account, here we will be discussing about few important things about this account type and how you can open Demat account.

What is Demat account?

Demat account is acronym for Dematerialized account. Demat account is an electronic account that holds all your shares in dematerialized or electronic form. It is like a bank account but instead of money, a demat account holds the certificates of your ETFs, mutual funds, government securities, bonds and shares.

A Demat account is necessary to trade in the stock market. As this account holds financial instruments in electronic form, therefore it saves you the bother of holding them in paper form.

Advantages of Demat Account

  • It is a convenient and safe way to hold securities.
  • One can immediately transfer securities through this account. Also,there is no need to pay any stamp duty on transfer.
  • There is no risk associated with physical certificates like thefts, delays, fake securities, bad delivery and more.
  • There is less paperwork involved in transfer of securities. Also, the transaction cost is reduced.
  • There is no problem of odd lots because one can sell even one share.
  • Facility of nomination is also provided.
  • Invest online
  • One can hold investments in debt instruments and equity in one account.

How do you open a demat account?

Opening a Demat account is straightforward and simple. Below is step by step process to open a demat account.

Step 1: For opening a demat account, you have to contact a Depository Participant (DP) registered with SEBI, an agent of depository and fill an account opening form. The list of DPs is present on the websites of depositories: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

Step 2: Along with the filled form you will have to submit photocopies of a few documents like proof of identity and proof of address.

Step 3: You will be required to sign an agreement with Depository Participant in the depository prescribed standard format, which provides details of duties and rights of investor and DP. You are authorized to get a copy of the agreement and schedule of charges.

Step 4: The Depository Participant will open an account and share your demat account number with you.

You can have more than one demat accounts if you want. You are free to choose a DP as per your comfort level and there is no compulsion to open DP account with your broker.

What is Demat account opening fee and in how many days you can have your account opened?

The Demat account opening fee is not fixed, it differs by DP. However, it usually ranges from Rs. 100-600.

As far as duration of opening an account is concerned, within 15 days of submitting your form you will be given a Unique DP Id-Client Id number or your account number.

Documents you need for opening a demat account:

You need the following documents to open a demat account:

  • Address proof (Electricity/telephone bill, Voter ID card,Passport, Driving License)
  • Bank statement (With complete address, for the past 1-6 months depending on the broker)
  • Cheque book (You will need a cancelled cheque)
  • A bank account
  • Passport size photographs
  • Age must be 18+

What is a Share Market broker?

A broker is an individual or organization who is licensed to buy and sell stocks and other securities on behalf of clients. A broker works as an agent. For most of the investors, the broker is a person they call when they want to trade or invest in stocks. Broker when works as an agentfor buying and selling of securities, they charge a commission for this service.

An investor should consider the broker as someone who gives valuable information and service to help in making the correct investment decision. They are qualified and experienced to give answers to a number of questions that the investor might need answers to and to help in participating in the trades.

Are brokers governed by any Rules and Regulations?

Yes, they are. Brokers are governed by Securities and Exchange Board of India [SEBI (Stock brokers and Sub brokers) Rules and Regulations, 1992], SEBI Act 1992,Securities Contracts Act 1956 and by laws of stock exchange of which he is a member etc. Every broker has to be registered with SEBI and must be a member of a stock exchange.

How you can determine if a broker is registered or not?

Brokers generally display their registration details on all the official documents as well as on their website. You can confirm the shared details on SEBI website. On SEBI website, you can find details of all registered brokers. The registration number starts with the letters “INB”.

What is a commission?

A commission is a fee, basically, that a broker charges for assisting you by submitting your trading orders to the market. Broker can earn commission in a number of ways. Brokers make commissions by not only taking care of your orders, but also providing you tips about which stocks to buy and how to invest in them.

A commission can be a flat rate or a percentage. In case of online trading, flat rate is the standard; in case of traditional brokerages, a percent of your purchase is the commission.

So, what are you still waiting for, if you want to start investing in stock market, go ahead and get your Demat account, now.