What is a Demat Account?

What is a Demat Account?

A demat account, otherwise known as dematerialised account is an online portfolio of sorts. It allows you to hold company shares and securities digitally. This can include mutual funds, stocks, bonds, ETFs, etc.

When you place an order to purchase a stock, it gets directly credited to your demat account. Similarly, when you place a sell order, it’s directly debited from your demat account.

A demat account is not just a storehouse for shares and securities but also helps reduce transaction costs and time.

Do You Need a Demat Account?

Gone are the days when you needed to hold a company’s share certificate as a proof of purchase. These days, all you need is a demat account. With this account, you can buy, sell and manage all your securities without having to worry about paperwork. Here’s why you should consider opening a demat account:

1.  You cannot buy or sell stocks without a demat account

2.  SEBI mandates a demat account to make transactions with listed companies

Benefits of a Demat Account

Here are some of the advantages of a demat account:

●        Safe and Secure

With the advent of the demat account, investors can now hold their shares and securities electronically on their demat account. This eliminates the need for physical share certificates that can be lost, damaged or stolen. Not to mention, physical copies are also cumbersome to store and keep track of.

●        Protected Against Forgery and Theft

Since a demat account is digital, this eliminates the chances of forgery or theft. Additionally, you can also stay protected against fraud by freezing your demat account in case you notice any suspicious activity.

●        Increased Efficiency

Transporting physical share documents can be time-consuming and requires a lot of effort. Switching to demat format has helped reduce the turnaround time for share deliveries.

●        Lowered Costs

Since the introduction of the demat account, the costs associated with investing in the stock market have come down drastically. This has made investing in the stock market more accessible for retail investors.

●        Global Investing Opportunities

With the introduction of demat, it has become easier for foreign investors to access the Indian stock market. This has made the Indian stock market attractive for a lot of foreign institutional investors.

Here are some of the key elements of any demat account:

●         Depository

In India, there are two authorised depositories, namely - Central Depository of Securities Limited (CDSL) and National Securities Depository Limited (NSDL). There is one notable difference between CDSL and NSDL. CDSL is the share depository for Bombay Stock Exchange (BSE) while NSDL works for the National Stock Exchange (NSE). However, it’s worth noting that the exchanges can use either of the two depositories for trading and settlements.

These depositories maintain ownership of records of financial securities. Both these depositories hold your financial securities in dematerialised form and facilitate trading.

●        Depository Participant

A depository participant acts as a mediator between depositories (NSDL or CDSL) and investors. Any SEBI registered body can act as a depository agent and conduct transactions on behalf of the investor.

 All depository services must be channelled through a depository participant. Registered financial institutions, commercial banks, RBI-approved foreign banks operating in India, Non-banking Financial Companies (NBFCs), clearinghouses, share transfer agents, etc. are eligible to act as depository participants.

●        Investor

The owner of the demat account is the investor. The investor initiates buy and sell orders that are executed by their respective DP.

●        Unique ID

Every demat account comes with a unique 16-digit identification number. This unique ID helps ensure a smooth and transparent processing.

How to Open a Demat Account

Here’s how you can open a demat account:

1.      Look for a depository participant

There are a number of DPs available in the market. Look into some of the leading DPs and choose one that suits your needs. A general rule is to go for a well-reputed brand that you can recognise.

2.      Fill in basic information

Once you have chosen your preferred DP, go on to their website and fill in their online application form. This will typically include your name, phone number, email address, PAN details, etc.

3.      Add bank account details

Since your demat account is closely linked to your bank account, you will need to provide your bank account details to your DP. This will include account number, account type, IFSC, etc. This is important to ensure that any amount payable (interest, dividend) to you is credited to you.

4.      Upload documents

You will need to upload identity and address proof documents to prove your identity.

5.      Verification

This is a very simple process that can be done from the comfort of your home. All you need to do is record a short video of yourself, reading out a given script to get your account verified.

6.      E-signature

Most DPs allow you to digitally sign using your registered mobile number, provided it is linked to your Aadhaar card.

7.      Form submission

Once you’re done with all these processes, you’re all-set to submit your form. After processing your application, your account details will be sent to you by your DP.

Things to Remember Before Opening a Demat Account

Here are some points to consider before opening your demat account:

●        Reputed brand

Ensure that you choose a DP that has a good reputation and adheres to all guidelines issued by the government and SEBI.

●        Fees and charges

Before opening your demat account, ensure that you’re fully aware of the associated fees and charges, particularly the brokerage fees.

●        Help and support

Make sure that you choose a DP that has a responsive customer service team. This can help you navigate sticky situations with ease.

Disclaimer: This content is part of a marketing initiative. No TNIE Group journalists were involved in the creation of this content.

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