What is Demat Account?
Demat Account is a place to hold your investment securities which are traded in the primary and secondary capital market. It is similar to your bank account except it just holds shares and other investment assets in dematerialised Form.
Earlier, securities like shares and bonds were hold in paper form, which was a very clumsy affair to hold the investments. Also, trading in such materialised shares i.e paper securities was a lengthy process. Hence, investors were more reluctant on investing and trading in shares and stocks. But as the western economies got developed the financial markets too grew exponentially and paper trading got replaced with electronic based share trading, where stocks were dematerialised and held into electronic form in a demat account. Soon, Indian financial markets too adopted the system and demat accounts became known and widely used affair in the financial markets. Since, the stocks and shares were held in electronic form, the trading and investing volume in the markets too swelled significantly.
India initiated the process of dematerialising the securities in 1996 with depositary act passed in same year. The two major depositories of the country the CDSL and NSDL too came up and helped this process in faster way and are free demat account offered. Post that the capital market scenario of the country totally changed. With new type instruments introduced in the market frequently, markets became more active as market participants rose equally.
What are objectives of demat account?
The primary objective of demat account is to hold securities and help you gain the profit out of it. When a investor wants to trade in securities he must open a demat account to in order to benefit from the fluctuations in share prices. Demat account helps you get the profit out of the rise in share prices.
Second objective of Demat account is to hold all types of securities apart from shares. Bonds, ETFs, mutual funds etc. are few of the key securities which you can hold in demat account .
It is similar to your bank account which holds your securities. But unlike bank accounts the demat account helps you multiply money with the investment securities. Bank account gives you interest rate which is minimal as compared to the returns provided by shares and other securities in demat account.
What are the benefits of demat Account?
Benefits of having demat account are plenty as it gives you an opportunity to invest and yield higher returns. Also, when you buy a share of a particular company, you become a partly owner of that company, Isn’t this the simplest way of owning a business. Apart from that, it is the safest way to hold your securities as holding share in your demat account is theft proof, no one can steal share from your demat account unless you sell it. In addition, the cost of maintaining the shares in demat account is very cheap as compared to the physical possession of the same which now totally outdated. Apart from stocks you can also invest in mutual funds, derivatives, bonds, ETFs and other investment assets by way of demat account which expands your opportunities of generating wealth through capital markets.
What is dematerialisation?
We have now got to know about what is demat account and its objectives. Now we move on further to know what is dematerialisation. Dematerialisation is the process of converting physical securities into electronic form. The physical securities or securities in paper form were traditional form of share which were issued and traded in the market. The process of investing and trading back then was not fast and convenient as today. The process was clumsier, time consuming and also money expensive. Hence, the participation of people in the share market was also vey low as compared to what we see today. Since, the establishment of demat process began, the dematerialisation also accelerated fast and all the paper securities got converted into electronic form and were hold into demat accounts. Post dematerialisation the participation of people in the market has increased tremendously as the investing and trading has become lot more easier and time consuming. Also, it has eliminated unwanted intermediaries which had increased the cost of share trading in the market. Now opening demat account is far easier and faster and happens with few clicks only.
How to convert physical share into demat account?
Physical share were the talk of the dalal street few decades ago. Probably before 1990’s period was best time for these physical share trading. When the dematrialisation of share began all the physical shares became obsolete. Many of the shareholders forgot to convert it into a dematerialised format and held these shares in their lockers. However, the next generation of the shareholders struggled to find on how to sell these shares. Now one cannot sell the physical shares directly into the markets they have to be converted into a dematerialised format.
Step 1- Open demat account
Step 2- After you have completed the demat accounting opening process and client and depository id is been issued to you. You must contact your depository for DRF form ( Depository Reserve Form)
- Fill up the form with relevant details and submit it to the depository with physical share certificates you hold and want to convert it into dematerialised form.
- You should mention – Surrendered for dematerialisation on each share certificate
- After the successful verification by the competent authorities of depositories your process will be completed within 2-3 weeks and the physical shares will get converted into a electronic dematerialised form into your demat account.
How to open a demat account?
Thanks to the digital advancement happened till now it has become much easy for investor to open a demat account. The real struggle lies with choosing wise broker who will assist you in making the process more easy. Choose a broker who has strong track record of being investor friendly realtions. Also, he must provide sound online share trading interface which could help investor in doing online trading easily. Now once, the broker is chosen you can opt out of two type of processes
- Physical account opening
- Online demat account opening
First process includes filling form and attaching relevant required details with it and submitting it to the broker to open demat account. The process is old and rarely used now with majority work done on online platform quickly. Also, the physical demat account opening process is time consuming and involves too many intermedieries.
On the other hand the online demat account opening process is the fastest safest and time consuming process for the investors looking to open the demat account. The online account opening process can be done in 3 steps easily.
- Click on open an account
- Fill up the relevant KYC details
- Attach the soft copy of the required documents and upload them on portal
Once the depository approves your credentials you will get a depository ID and client ID by the broker and further you are ready to go with investing in your demat account.
Account Opening fees
The fees are one time fees taken by the broker in order to facilitate your account opening process. The demat account opening process requires lot of infrastructure such as human capital, technological infrastructure,etc.
Annual maintenance charges
Annual charges are taken to keep your services active for year and those differ according to the segments you trade in. Some of the investors only trade in equities and not commodities,forex, F&O’s etc. The charges range between Rs.300 to Rs.100. However, Many brokers provide discount in such charges too.
Transaction charges
Often known as brokerage charges these charges are applied on transactions and
Who can open demat account?
Any resident or non-resident of the country can open a demat account with valid legal documents. A minor too can open a demat account with the help of a guardian. Similarly, a firm too can open a demat account for them, the process and the form of operation might be different for the firm and an individual person. The Non- resident citizens too can open demat account in the country and benefit from it.
Can there be one or more demat accounts of one person?
Yes, a person can have one or more demat account with various stock brokers if he wants. However, all those accounts will be linked to one depository. You cannot have multiple accounts with single broker.
What are types of Demat Account?
There are different type of demat accounts for different kind of people.
Regular Demat account- The account is opened by the resident citizens of the country. In broader terms it includes the newly termed BSDA (Basic Services Demat Account) which has no charges bearable upto Rs.50000 of holding.
Repatriable Demat Account- It is opened for those non- resident Indians who would like to transfer the money abroad and the account is linked to their NRE account.
Non- Repatriable Demat- This type of demat account does not allow the funds to be transferred abroad. Also, you need a NRO account linked to this type of non-repatriable demat account.
How to open a Demat Account?
For opening a demat account you need to follow below 3 steps and then you are done.
Step 1- Choose a brokerage house with which you want to open your demat account.
Step 2- Submit the related documents. (Identity proof, Address proof, Income statement, pan card, photo graphs)
Step 3- In person verification by depository
Step 4- After the approval by depository the DP id will be generated and account will be opened with Client Id.
