What is a Demat Account?

A critical tool for maximizing your wealth and safekeeping, Demat accounts make share trading quick and easy. It eliminates the risks and challenges associated with physical share certificates. In India, if you wish to invest in the stock market, it is mandatory to open a Demat Account.

Earlier, shares were held in a physical form through share certificates. However, it made the entire process of share trading cumbersome and difficult to carry out at short notice.

To eliminate these limitations, the National Securities Depository Limited (NSDL) was established in 1996. They introduced the concept of Demat accounts, which could be used to electronically store shares and securities of companies. If you own physical shares, you need to convert them to electronic records before using a Demat account. This process is commonly known as Dematerialization.

 

Importance Of Demat Account:

With a Demat account, you can hold a wide variety of investments such as bonds, equity shares, government securities, mutual funds, and exchange-traded funds (ETFs). Similar to a bank account, a Demat account is either credited or debited each time you buy or sell shares of a company.

It not only eliminates unnecessary paperwork but also helps streamline the process of share trading. All of the Demat accounts in India are maintained by two depositories, namely National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

How does a Demat Account work? 

The nature of a Demat Account is homogeneous to a savings bank account. Just like, one can store cash in electronic form into saving account the investors can store securities into the Demat Account of a Depository Participants (DP) associated with the NSDL or CDSL. When shares or securities are purchased, Demat Account is credited. However the account is debited when shares or securities are sold. For transacting in equity and securities through your Demat Account, it is a prerequisite to link it to your trading and savings account.

 

Documents required for Demat Account opening:

For convenient and hassle-free process of opening a Demat Account, you must have some essential documents, here is a complete list required documents given below:

 

·       Proof of identity with photo. For example, Aadhar card, PAN card, Voter ID card, driving license, etc.

·       Proof of residence – Registered lease agreements, driver’s license, passports, landline telephone bills, electricity bills, apartment maintenance bills (if applicable), copy insurance, gas bills, etc.

·       Proof of Bank Account – The bank’s passbook or account statement (must be no more than three months old).

·       Proof of income – Payslips or taxes (Mandatory for the currency and derivatives segments)

 

Demat Account fees and charges:

Several leading Depository Participants in India offer exceptional services. They charge a certain sum to open these accounts, which may vary for every participants. It makes it difficult for investors to comprehend the nature of services and fees depository participants charges. To make it easy for you to understand, here’s a brief explanation of the particulars of each service.

Types of Demat Accounts:

In India, there are primarily three types of Demat Accounts offered by depository participants.

1.    Regular Demat Accounts:

2.    Repatriable Demat Accounts

3.    Non-Repatriable Demat Accounts

1.    Regular Demat Accounts:

These are Dematerialized accounts for Indian residents. If you are a resident India dealing with equity trading and investments, a regular Demat Account is ideal for you.

2.    Repatriable Demat Accounts:

This is one of the two types of Demat Accounts available for NRIs. A repatriable account allows you to transfer your funds abroad if you are an NRI. You need to link this account with a Non-Resident External (NRE) bank account to repatriate your funds.

3.    Non-Repatriable Demat Accounts:

If you are an NRI, you can also choose to open a Non-repatriable account. This type of account does not allow to transfer funds  abroad. It needs to be linked to a Non-Resident Ordinary (NRO) bank account.

  

Features of Demat Account:

By opening a Demat Account, you can access many useful features.

1.    Share Transfer

2.    Loan Collateral

3.    Temporary Freeze

4.    Quick transfer of benefits

5.    Speed e-facility

6.    Easier holding

7.    Multiple access points

 

 

1.    Share Transfer: You only need to send in a duly signed Delivery Instruction Slips (DIS) to your depository participant to transfer your shares.

2.    Loan Collateral: You can pledge the securities you hold in a Demat Account and use them as collateral for securing a loan from a financial institution.

3.    Temporary Freeze: You can temporarily freeze your Demat Account for a specific duration. This feature is generally only made available if you hold a specific number of shares in your account.

4.    Quick transfer of benefits: Best Demat Account offers a swift transfer of benefits such as dividends, bonus issue of shares, stock splits, interest and refunds.

5.    Speed e-facility: NSDL allows you to send instruction slips to your depository participants electronically. This not only makes the entire process faster but less cumbersome.

6.    Easier holding:  Maintaining Physical Certificates is cumbersome and risky. Opening a Demat Account digitises the certificates enabling easier holding and added security

7.     Multiple Access Points: Being completely digital, Demat Accounts can be accessed from anywhere using any digital device like computers, mobile phones, or other smart devices.

 

Benefits of a Demat Account

Demat Account comes with several benefits:

1.    Swift settlements and deliveries

2.    Increased share trading volume and market participation

3.    Increased transparency

4.    Eliminates paperwork

5.    Quick and easy communication with investors

6.    Little to no risk are involved

7.    Build trust and increase investors confidence

 

Buying stocks in the share market can be done only through a trading account which is later held in a Demat Account. To realize the full potential of Demat Account, it is imperative to link it with trading account.

 

Tips to choose the best Demat Account for you

ü Check whether the account maintenance charges are economical:

Maintenance of Demat Accounts involves annual charges irrespective of your transactional activity. You must checkout the range of charges involved with the Demat Account and choose the most economical account.

 

ü Enquire about the account opening process:

The Demat Account opening process offered by your depository participants should be hassle-free and quick. Opening a Demat Account involves a detailed process as SEBI guidelines. The depository participant can simplify it with the help of e-KYC.

ü Look for a seamless interface for broking and banking:

Depository participants also offer Demat Accounts that serve as a Trading Accounts too, providing a seamless transfer of money during the sale or purchase of share and securities. An interface between the two accounts not only simplifies transactions but also make them economical.

 

ü Check if the depository participant offers customised analytics for Demat Account holdings:

Online analytics customised as per your choice of shares and security along with their investment habits allows you to increase earnings. You must look for value additions like these when choosing the best Demat Account.

Additional features like a shorter Turnaround Time (TAT) for share Dematerialisation allow you to access the depository participants commitment to serving investors.

 

Who is eligible to open a Demat Account?

The following persons are eligible to open a Demat Account:

·       Resident Individuals

·       Non-resident individuals

·       Hindu Undivided Families(HUFs)

·       Partnership Firms

·       Companies