Everything About Demat Accounts You Should Know About

The term “Demat account” refers to a digital account wherein digital versions of financial investments such as equity shares, exchange-traded funds (ETFs), bonds, debt securities, and so forth can be maintained. Any of these financial investments that are purchased by a person are moved from the seller’s demat account to the buyer’s Demat account.

A user can choose to open a demat account with any of these demat account providers, as many financial institutions give the option to do so.

Why Do You Need a Demat Account?

For all of your securities transactions in India, a demat account acts as a data repository. The ownership change is shown in your Demat account when you purchase and sell exchange traded funds (ETFs), equities, bonds, and mutual funds.

Anyone who wishes to trade Indian shares must have a demat account, according to the Securities and Exchange Board of India (SEBI). This means that demat accounts are necessary and that it is never permitted for anyone without a demat account to trade securities in India.

However, regulatory compliance isn’t the only reason for Demat accounts. They give you a permanent record of all your securities trading transactions as well as helpful features and other benefits.

Check – Unlisted Shares

You get a safe wallet. 

Demat accounts act as secure digital wallets for storing assets. Investors don’t have to worry about losing their actual certificates, getting them stolen, or having their stock and bond holdings exchanged fraudulently. Demat accounts also get rid of the opportunity for forged signatures on paper certificates.

Obtain current market data.

You may access helpful market data, like real-time price charts and investment comparison tools, if you have a Demat account. You can trade with the information about investments provided by this.

There are no minimum fees or trading requirements.

There are no minimum balance requirements or trade execution minimums for Demat accounts. This lessens the strain on long-term or dormant investors who want to sometimes make a trade.

To restrict the credit or debit flow of the account, investors can potentially temporarily freeze the Demat account.

Benefits of a Demat Account

Demat Accounts were first made available in India in 1996. They offer many advantages to traditional certificates, some of which are given below: –

  1. Demat accounts provide for quick and convenient trading of financial investments. Since they are in digital form, they cannot be faked or falsified since regulators implement necessary controls and there are enough audit trails.
  2. Reduces Paperwork: Because everything is done digitally, Demat accounts significantly minimize the amount of paperwork.
  3. Boosts Share Trading and Market Liquidity: As Demat account trading is rapid and convenient, more individuals trade in these investments because they can be traded at the touch of a button, which in turn increases market liquidity.

Open An Account

You will receive an account opening form from your DP. To complete it, you’ll need:

  • Your identification can be verified using your PAN card.
  • An Aadhaar card or another identity card issued by the government, such as a voter’s ID or driver’s licence, acts as a documentation of your address.
  • Copy of a voided bank check or bank passbook to show your identity and bank account number.
  • Your income can be demonstrated by your income tax returns or your last six months’ worth of pay stubs.
  • Photos the size of a passport for in-person verification. Both account holders must be present for the verification process in cases of joint accounts.

 

Check – Delisted Shares.

Investors are permitted to maintain multiple Demat accounts, but they cannot share the same DPs.

Trading Accounts: You must create a trading or broking account with any SEBI-registered stockbroker in addition to your Demat account if you wish to buy and sell shares on the stock market.

Depending on what they offer, your DPs can help you open trading accounts. Along with a Demat account, trading accounts are supplementary accounts required for trading in stocks. A trading account cannot be used if a Demat account is not present.

Simply expressed, a trading account allows you to carry out the actual buying and selling of shares, whereas a Demat account assists you in storing information on the activities involving your assets. As with several Demat accounts, an investor may have many trading accounts.

Verify Documents

Upon opening your Demat account, you will be sent a series of identifying documents, including:

  • Your DP reference number. The central depositories assign this 8-digit code to each DPs Demat account number. Your DP ID and client ID, an 8-digit code used by DPs to identify clients in the system, are specially combined into this 16-digit code.
  • a duplicate of the client master report. This will include information on your Demat account, so make sure that the information you provided with your DPs is accurate.
  • username and password. When creating an account for online access, a special login ID and password will be provided.
  • Letter of power of attorney. This document enables a broker to manage the Demat account of a client. It functions as a letter of authorisation, without which a broker cannot execute trades on behalf of a client.

You can start buying, selling, and storing shares as soon as your Demat account is open. You can also use it to apply for initial public offerings of companies, receive corporate benefits like dividends, hold mutual funds and bonds, including government securities, and treat it as your identity on the Indian stock market.

Types of Demat Accounts

There are three different types of Demat accounts available in India, and a person can choose one of them based on their residential status: –

  • Regular Demat Accounts: Individuals who reside in India may open these regular Demat Accounts.
  • Repatriable Demat Accounts: One of the two types of demat account choices offered to NRIs is a repatriable Demat account. As the name suggests, if the account holder is an NRI, this sort of Demat Account enables money transfers abroad. To use the facility of money repatriation, the NRI must link this account with his NRE bank account.
  • Non-Repatriable Demat Accounts: An NRI could choose this sort of account as their second accessible Demat account choice if they do not want to repatriate their foreign savings. This account should be connected to NRI’s NRO bank account.

Things to check before opening a Demat Account 

In the modern era, numerous financial institutions provide Demat Accounts. But not every demat account provides the same services. Therefore, the following items should be examined before opening a demat account with any of these financial institutions: –

  • Trading Account Facility


It’s crucial to remember that a Demat account is a place where all of your financial investments are stored electronically. However, you also need a trading account in order to trade these investments. Accounts for both Demat and Trading might be held at the same or a different financial institution. Therefore, you should determine whether the same organisation offers you the option for a trading account as well before registering a Demat account. If not, you need to choose a trading account separately from another financial institution.

  • Charges


A Demat Account charges its customers the following type of fees:-

  • Account Opening Charges
  • Annual Maintenance Charges
  • Brokerage Charges
  • DP Charges

While deciding where to open a demat account, a person should keep all these charges in mind and decide accordingly.

  • Discount Brokerage or Full Service Brokerage

A discount brokerage account is one that provides only a small number of essential services at a low price. On the other side, a full service brokerage is a type of brokerage account that provides a wide range of auxiliary services but at a tremendous cost. Although the annual maintenance and brokerage fees increase, the full-service brokerage does not charge separately for these supplementary services.

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