Demat (Dematerialized) Account
Any individual who is interested to invest in Share Market can’t invest directly in Shares of any Company. They have to firstly open Demat Account. As an individual, we can’t open our account directly, with a depository such as CDSL (Central Depository Service Limited) or NSDL (National Securities Depository Limited). Instead, we need to register with a Depository Participant (DP), known as a broker, who in turns registers our Demat Account with the depository. With this article, the reader will get the knowledge about the Demat Account.
In this article we will go through the following topics:-
- What is a Demat Account
- Advantage and Disadvantage of Demat Account
- Demat Account opening procedure
- Document required for opening Demat Account
- How to invest using Demat Account
- Eligibility criteria and Charges
- Name of Full services and Discount brokers.
What is a Demat Account?
Demat Account is an account that allows investors to hold their shares in an electronic form.
Instead of having to deal with obnoxious paperwork, investors now hold their stocks or mutual funds and exchange-traded funds (ETFs) in an electronic form in a Demat account.
Demat Account is the equivalent of a Book Account, but where a Demat account holds all shares, a bank account holds your money.
As I have cleared it above, that an Individual can’t open Demat Account directly with a depository such as CSDL or NSDL. We have to register with a Depository Participant (DP).
A DP is usually a stock brokerage or bank, that has been granted the license to open Demat Accounts on behalf of its customers or investors.
Advantages and Disadvantages of Demat Account
- This account generally helps us to avoid problems which are associated with physical share certificates.
- It is very easy and convenient to hold securities in this account.
- It is safer than physical shares which are in paper form.
- Any changes done by shareholders in a registered record with a partner automatically get registered with all securities held by the shareholder.
- Automatic credit into an online account for shares which arises out of bonus and splits.
- It reduces risks of delayed settlement.
- Traders can deal with shares from anywhere using this account.
- Shares are immediately credited to the account after purchases have been done.
- Demat Account reduces transaction charges and avoids stamp duty on them as well.
- Trading in securities may become uncontrolled in case of dematerialized securities.
- There is no provision to close a Demat account which is having illiquid shares.
- After liquidating the holdings many Indian investors don’t close their DP account.
- Only educated PPI can access it.
- It may become difficult for the regulator to access market activity in all Demat.
Demat Account Opening Procedure:-
There are two ways to start with your account:
- Online Account Opening
- Traditional Method of Submitting Physical Forms.
Before starting on the Demat Account opening procedure, select broker on a variety of factors- such as brokerage fees/charges, the platform’s/user interface and customer service.
- Online Account Opening
- Head to the brokers online Demat account opening page.
- Enter your basic details and click sign up.
- Keep scanned copies of your documents with you to upload them.
This number is called the Beneficial Owner Identification Number (BOID) or Unique Client Code (UCC).
Document Required for Demat Account
There are few governments approved documents required for opening Demat account:-
- Proof Of Identity:-
- PAN Card
- Driving Licence
- Any document notified by the Central Government
- Proof Of Address:-
- Voter Identity Card
- Driving Licence
- Bank Account Statement
- Proof Of Bank:-
- Cancelled Cheque
- Bank Statement
How To Invest Using Demat Account:-
I’m hoping all of you’re familiar with What is Demat Account and have grasped how to open a Demat Account. Before starting this topic we need to discuss some important things:-
- It was introduced in 1996.
- The total number of investor accounts in the country, as of July 2017 stood at 16.02 million with NSDL and 12.03 million with CDSL.
- On CDSL traders hold 25,709 Crores of securities.
Now, how to invest using a Demat Account. I will discuss this by an example.
Suppose you picked Upstox as Brocker or DP for opening my Demat Account. Here’s how you will start investing:-
- You should get used to the trading platform you will be using- in this case, you can use Upstox Pro Web or Upstox Pro Mobile.
- It is important for you to know trading terms like IPO, Portfolio, to know trading terms like IPO, Portfolio, Yield, Index, Sector, P/E ratio etc.
- Link your bank account to the trading account you are using. Start buying your desired stocks from the market using the money in the trading account.
- After you are done buying stocks; your trading account will be debited in real-time and the shares you bought will be credited to your Demat Account within the ‘Settlement’ period, which is T+2 days.
- You can sell your stocks on the same platform.
- Your securities will be debited and credited to and from your account in the ‘settlement period’. This is usually within T+2 days, i.e. two days after a trade is placed.
Eligibility Criteria and Charges:-
- There is no minimum age to invest in the stock market. Both Minor and an Adult can invest in the stocks.
- Pan and KYC details are a necessity to get started. (for minor parents detailed are required)
- Annual Maintenance Fee (vary from broker to broker)
- Account Opening Charges (vary from broker to broker)
- Transaction Fees (vary from broker to broker)
It is the process of converting physical share certificates and securities to an electronic format which is stored in a Demat account. To alleviate the risk associated with trading of securities in paper format, the concept of dematerialization was introduced in the Indian Share Markets.
Process of Dematerialisation of Shares:-
- First, approach your brokerage firm and complete all the procedures to open a Demat account
- To convert your securities from physical to electronic form, you have to request a Demat Request Form (DRF)
- For every share with a different ISIN (International Securities Identifications Number), a separate form will be required.
- The brokerage firm will process the request to the company in which you hold the shares.
- Once the request is approved by the company, your physical form of the share will be destroyed and a confirmation will be sent.
- The depository will confirm the dematerialization process. Once the process is completed, all the physical shares will be converted into electronic form from 15 to 30 days.
List of Brokers in India:-
There are two types of Brokers in India viz. Full-Service Brokers and Discount Brokers
- Full-Service Brokers:-
- Motilal Oswal
- Angel Broking
- ICICI Direct
- HDFC Securities
- Axis Direct
- Kotak Securities
- India Infoline (IIFL)
- Discount Brokers:-
- 5 paisa
- Upstox (RKSV)
- My value Trade
- Trading Bells
- SAS Online
- R K Global
- Trade plus
- Trade smart Online