What is a Demat account?
Stocks and shares were originally exchanged using physical receipts, also known as certificates. This required lengthy paperwork and was time-consuming. In 1996, an electronic trading platform was launched in Asia and the West to combat this problem. The physical share certificates were then converted into electronic securities of equal price and number and credited to the investor’s Demat account. This was how trading began.
Why do you need to open a Demat Account?
These accounts are crucial today as the entire financial platform for trading, investing, and maintaining has become digitalized. Demat accounts provide a simple and seamless experience for the user. These accounts are necessary to trade on India’s stock markets. SEBI, Securities and Exchange Board of India has allowed 500 shares to be settled in physical form. However, this is not an option as it creates excessive hassles for maintenance and tracking.
The account contains certificates of financial instruments like shares, bonds, and government securities. The dematerialization account allows investor to manage their investments and gives them the ability to purchase and sell any product they want.
A Demat account can be more than just a place to keep securities. Digitization improves market transparency and regulation.
It is difficult to invest in physical shares. There are lengthy procedures and high risks of getting fake shares. An investor should open a Demat account to simplify the entire process.
Online trading allows securities and shares to be stored in an account that is either electronic or dematerialized. To make it more accessible, dematerialization is the conversion of physical share certificates into an electronic format.
According to SEBI guidelines, these accounts are mandatory for any shareholder who plans to trade stocks or shares.
An investor must have a unique Demat account number in order to electronically settle trades.
It’s a similar concept to a bank account. A bank passbook keeps track of all balances, including credit and debt. The same applies to the sale or purchase of shares. It will either be credited or debited from the account. This account allows an investor to purchase and sell shares and other products and keeps them safe and sound.
You can use a Demat account to hold shares, stocks, indices, and gold. These are traded on the exchanges. A Demat account can be opened without the need to own shares or products. It also allows you to maintain a zero balance.
FUNCTIONING A DEMAT ACCOUNT
Your Demat account holds all your shares and investments, including securities, bonds, mutual funds, government securities, and ETFs. Understanding the processes and the bodies involved in the operation of such an account is crucial. Here are the main functions and features of a Demat account:
- Depository: At present, there are two registered depositories with SEBI. These depositories will hold your Demat account for you. This is the same as a bank.
- The depository participant(s) (DP) is an agent that interfaces with investors. A DP can be registered for financial institutions, scheduled commercial banks, and foreign banks with operations in India approved by RBI – Reserve bank of India. Stockbrokers, clearing corporations or houses, state financial corporations, and NBFCs, as long as they comply with the SEBI requirements. A branch can provide banking services, but depository services are available via a designated person.
- Portfolio Holding: The Demat account allows you to see your portfolio holdings and investments at any time an investment transaction is made. It is an automated process that records every sale and purchase with all details, including price, purchase date, purchase date, and quantity.
- Unique ID: every single Demat account has a unique verification identity number. This number is used to assist companies in identifying and crediting securities held by the investor. It is a 16-digit unique number. The first 8 digits of the number are the DP ID, while the last 8 digits are the Client Id (investor account).
FACILITIES OFFERED BY THE DEMAT ACCOUNT
Demat account opening offers many benefits to the investor. Let’s take a look at some of them:
- Transfer of Investments: A Demat Account facilitates the transfer of shares by an investor. It allows for the easy transfer of shares by filling out a Delivery Instruction Slip ( DIS ), which contains all relevant information about the investor. It is not limited to shares. Other investments and security holdings can also be transferred through this account.
- Dematerialization and Rematerialization: A Demat account facilitates the conversion of securities in different formats. Your DP – Depository Participant for Dematerialization will be able to complete the necessary formalities to convert your physical share certificate to an electronic format. The investor can also convert their electronic security holding back to physical form through Rematerialization. This involves the DP filling out an RRF – Remat Request form.
- Loan Facility: The securities in an account can be used to provide details to the investor to help him apply for a loan from a financial institution or bank. You can use the securities as collateral for a loan.
- Corporate Actions: These accounts help the investor track and maintain his securities. This account is required in order to monitor the split of equity shares, bonus issues,s or any other actions taken by companies for shareholders. These can be accessed directly from the account.
- Freezing your Demat bank account: Investors have the option to freeze their accounts for a specified period of time or according to requirements. This can be done to stop unexpected activity in your account. To be eligible for this facility, a certain amount of shares must be in the investor’s account.
- Speed E- Facility: NSDL offers an electronic way for investors to submit an e-slip and have the transaction completed electronically. This is then sent to their DP.
Angel One services offer these Demat facilities for their investors. They may also provide easier and more convenient methods of trading.
HOW TO OPEN A DEMAT ACCOUNT
These simple steps make it easy to open a Demat account.
- Step 1: Choose a Depository Participant to open your account. The depository opens an account for the beneficial owner (BO)
- Step 2: Fill out an account opening form with all investor details. Also, include supporting documentation copies such as proof of address, proof of identity, and proof of income. To open an account, a PAN card must be presented. For verification purposes, all documentation must be original.
- Step 3: You will receive a copy of the rules and regulations along with the charges that must be paid to your DP. A representative of the DP will conduct an in-person verification to verify all details and documentation supplied by the investor.
- Step 4 – After all documentation has been submitted and approved, your Demat account will be opened.
Investors can open an account online within minutes by contacting any bank or financial institution. Online account opening is possible in many ways. Angel One is one option.
What you need to know about opening Demat accounts
It is easy to open a Demat account online thanks to the modern online account opening process. You don’t even need to visit the broker’s offices for an account openings. Fill out the electronic form and update your mobile number and email id to get a Demat account opened in less than an hour. You must be an educated investor and make sure you are aware of these things.
Demat documents required To complete the KYC process, you will need a list. This includes identification and address proof, bank account details, and PAN. The DP will send you a list with the required documents for account opening. To avoid having your application rejected, make sure that you have the correct documents.
Fees: Broker charges a range of fees, from SEBI taxes to operating fees. These are additional costs that you will need to pay in addition to capital fund investment.
Linking Demat. Opening Demat allows you to start investing in securities. However, a Demat account will allow you to keep the securities for transactions. To trade, you will need a trading account linked to your Demat. There are two types of trading accounts: Demat and trading. However, this can increase the time and effort required to transfer scrips from one account into another. You can open both accounts with the same broker to facilitate smoother transactions.
Nomination: Registering a nominee for your Demat will save you time and make it easier in the long term. This is an important step we often overlook. We recommend that you name a nominee to your account when opening the Demat.
Additional Features of Demat Account
These are just a few of the many benefits that Demat accounts offer.
Consolidation It is possible to combine different portfolios within the same company to create new portfolios. The physical certificates can be sent to the RSTA along with a letter signed requesting consolidation.
Account freezing This feature allows you to lock your account and any security for a specified period. It can be done to stop any unwelcome action from your account.
Account Types: Demat accounts can be opened in different formats, just as a bank account. A joint Demat account can be opened, as well as multiple accounts in the company’s name, or even the name and address of a minor. To operate a Demat account for a minor, you will need to have a guardian.
Opening an account can be costly. There are transaction fees, an annual maintenance fee, and commissions for each transaction performed by the DP. Depending on the DP, a fee might be charged to dematerialize the shares. There are no minimum balance requirements. These accounts can be opened even if you do not own any securities.
