A demat account is a repository for all the assets you purchase on the stock market. It is exactly like a savings account. However, instead of holding money, it holds all your securities. So in a way, it is similar to a savings account but different at the same time. Let us look at the details of a demat account:
What is Demat Account?
Demat account is necessary if you are about to invest in the stock market. It is a short form of dematerialization. Earlier, the shares were issued in the form of a paper certificate. This was a tedious task and had a lot of drawbacks. To tackle these problems, dematerialization was introduced. Now, these shares are issued in their electronic form by the national depositories.
We all know what a Demat account is and the kind of purpose that it serves in the context of share trading and the like. Well, for the uninitiated, a Demat account is the reservoir where you keep the shares that you have bought. It is from the Demat account that you take out your shares when you are trying to sell them. You should also know that you cannot trade in shares if you do not have a Demat account. There was a time when opening such an account was tough but the process has now been made easier with the help of service providers who let you open such accounts online.
How to get started?
If you want to know how to open Demat account you need to know a few things. You have to make sure that you get the depository participant right in these cases. You also have to fill the opening form within the specified time. There are some easy steps that you have to follow in this regard.
Step 1
You need to first choose the depository participant with which you would like to start the account. The good thing these days is that most financial institutions and brokerages offer these services.
Step 2
After that, you would have to fill up the opening form and submit it. At the time of submission, you would also have to provide copies of the documents that are needed in these cases. You would have to provide a passport-sized photo of yours as well. You should have a PAN (permanent account number) card. Remember that your brokerage house would want to verify the information that you have provided in the account opening form. So, you have to carry your original documents with you till such verification is completed.
Step 3
You would get a copy of the rules and regulations that are applicable in these cases from your DP (depository participant). It will also send you the terms and conditions as well as the charges that you would have to pay in these cases.
Step 4
This is the stage of in-person verification. An employee of your DP would get in touch with you and find out if the details provided in the account opening form are correct or not.
Once it processes your application your DP would provide you with a client ID and a Demat account number, which you can use for accessing your Demat account
Why you need a Demat Account
Safety:
In earlier times, when there was no demat account, it was difficult to store and maintain securities in their physical form. There was a permanent risk of them getting stolen, damaged, misplaced, etc. But since the advent of the electronic form, investments have become much safer. To make it more secure, regulatory and compliance authority like SEBI has been formed.
No Alternative:
There are no substitutes for a demat account. Without the presence of a demat account, you won’t be able to trade in the stock market. Trading is done electronically therefore you need a demat account for buying and selling shares. It is compulsory to settle trades in a demat account.
Efficient Storage:
Maintaining different accounts for different types of securities can be extremely difficult and confusing. A demat account provides you the solution of storing all your assets like debt securities, equity, MF, etc in one place. This makes the task of keeping score of all the securities fairly easy.
Flexibility:
Demat accounts are very easy to access since they operated electronically. You do not have to be in front of a computer to access your demat account. It can be accessed from anywhere using a laptop, smart phone, tablet, or other electronic devices. You can even trade while you are on the move. This way you will never miss out on an important transaction.
Convenient:
Physical form of the securities required you to visit brokers every time you wanted to trade. But since the demat account came into existence it can all be done in a few seconds.
Charges of Demat Account
Demat account is not completely free. You can open such an account for free. However, other charges are also applicable in these cases. You do not get free lunches in life, do you? You always have to pay some money to get each and everything in life. It is the same with a Demat account as well. You have to pay some money to avail of the benefits that accrue to you from such an account. After all, ever since they came into being in 1996 they have made it possible for you to invest from your armchair.
Opening charges
There is a good chance that you would not have to make any payment in this regard. Even if you have to the amount would be so negligible that you would not even notice the same. In some cases, investors open a 3-in-1 account with banks. In such cases, they tend to do it for free. These accounts give you the combined benefits of savings, trading, and Demat accounts at one go.
Safety charges
These are also known as custodian free charges. There was a time when investors like you always had to worry if their shares were safe or not. However, those anxieties are now a thing of the past thanks to the Demat accounts. Since your documents are now maintained in an electronic format in a Demat account they cannot be stolen any longer. Banks and DPs (depository participants) that offer such accounts tend to charge a custodian fee for keeping your securities safe. Unless it has been stated otherwise such amount is charged once a year.
Account maintenance charges
These are among the most crucial among all the different Demat account charges. This is a fee that you need to pay each year for maintaining your Demat account.
Normally, the DPs do not charge any fee for a basic Demat account where the balance is 50,000 rupees or lower than that. If your holdings are worth between 50,001 and 200,000 rupees you may have to pay anywhere between 100 and 750 rupees. This depends on the number of transactions that you have made in the account. In some cases, the DPs charge a quarterly fee as well. In some other cases, they charge a lifetime fee, which could be more than 2000 rupees. If your holdings are worth more than 2 lakh rupees you may have to pay an account maintenance fee in the region of 2000 to 2500 rupees.
Documents Required to Open Demat Account
- Copy of my PAN Card
- Address Proof Copy
- My Photographs
- Cancelled cheque of my bank account
In some cases, proof of income is also required to open demat account. But I think I wanted to simply buy shares for the long term, so I wasn’t asked for it. These are the basic documents required for demat account and each one has its purpose.
The PAN card copy you submit should be clear and your picture should be visible. For the address proof, you can submit a copy of electricity bill, bank passbook copy, insurance policy copy that mentions your address or your rent agreement would also do. Photographs should be passport size and a recent one. Don’t give them a picture from years ago. What cancelled cheque does is, it gives them the proof of your bank account and also the cheque has all the necessary bank details. Don’t overdo with cancelling, just strike it off from the bottom left to top right and write ‘cancelled’ in the middle. These are basics document requirements. Based on the account type and the kind of trading you want to do, you might be asked to submit more documents.
