How to open a Demat account?

Introduction

Given the many tasks you do every day, managing your finances can be difficult. The Depository Act of 1996 made it easy for anyone to manage their financial securities with just a few clicks. A demat account allows you to access the advantages of an online trading platform that lets you trade your financial securities electronically.

In 1996, the Government of India created the demat account provisions to keep pace with changing times. Most developed countries offer electronic trading platforms. This allows for fraud reduction, market efficiency and easy trading.

According to the Securities Exchange Board of India, anyone trading in financial security securities must have a demat account. A report shows that in 2018, there were 3.76 million new Demat accounts. This is the highest number of demat accounts opened in one year, after 3 million accounts were opened in 2007-2008. This is a sign that investors are increasingly interested in investing directly in the equity markets.

Opening a Demat account is essential for investing in the stock exchange. If you're a novice investor, it is common to have questions about Demat account. We will answer all of your questions about Demat account in this article.

What is a Demat Account?

Demat accounts are essentially 'dematerialized' accounts. This means that you can access your shares, stocks and bonds electronically, rather than in a hardcopy or physical form.

The following securities can be held in a demat account:

1. Shares
2. Stocks
3. E-gold
4. Bonds
5. Securities of the government
6. IPOs
7. Exchange-traded funds
8. Non-convertible debentures
9. Stock exchange trading of mutual funds

A demat account can be viewed as any other bank account. It shows your credit, debits and balances. It also has transaction history. This account allows you to keep your finances electronic. The account can have any amount you want, but there is no lower limit. A zero balance is possible at the time of opening the account and throughout the term.

Open an account to invest in stock markets

The first step in becoming an investor is opening a Demat account. To trade, however, you need a Demat account and a bank account. Demat accounts are merely deposit accounts that hold securities until you trade. To make real transactions, a trading account is required. A trading account allows you to invest in stocks, commodities, derivatives and e-gold.

A three-in-one account allows seamless trading and reduces the burden of managing multiple trading accounts. The three-in-one account allows you to save time switching between accounts, which can lead to losing a trade opportunity.

A demat account has many benefits

A demat account is a great way to reap the benefits of technological advances over the past few years.

1. Traders can complete transactions at their own convenience. Its an easy process.
2. Registering transactions is easy and requires no paperwork.
3. The securities are electronically stored so there is no risk of theft, delays or forgery of physical copies of shares certificates, bonds, and other securities.  
4. A single platform is available for both equity and debt instruments.
5. Automated credits to a registered demat account for bonus, splits and mergers.
6. It eliminates the need for multiple communications. Every stakeholder is notified about the transaction via electronic alerts. This removes the need to contact investors, traders, or the company.
7. Every company that has been invested in through the Depository Participant will have its address changed.
8. Unlike earlier times when shares could only be purchased/sold in large quantities, one share can now be bought/sold individually.
9. The significant reduction in trading costs has been achieved by the removal of stamp duty fees that were previously associated with physical records of securities.

The key elements of a demat bank account

These are the four main elements.

1. Depository

Two Indian authorised depositories are currently operating: The National Depository of Securities Ltd. and the Central Depository of Securities Ltd. These institutions hold electronically pre-verified shares.

2. Depository participant (DP)

Any financial institution registered under SEBI may act as an agent for the Depository and perform transactions on behalf of the investor. Any depository service must be routed through the DP. A DP could be a financial institution or a schedule commercial bank.  every DP has a unique code assigned by SEBI

3. Investor

The individual who is the investor is the owner of securities. The investor is the person who holds the demat account.

4. Unique ID

Each demat account is assigned a 16-digit identification number that ensures transparent and smooth processing of securities.

You can get many facilities with a demat card

Demat accounts are not just used to hold your financial securities, but also serve many other purposes.

1. Transfer of investment

Account holders can transfer all or part their holdings to other people. Only the account holder needs to complete a Delivery Instruction Slip with all the necessary information in order to make a seamless transfer of shares and other holdings.

2. Dematerialisation

Investors have the option to dematerialize their shares certificates and other securities records into electronic format. The account holder must fill out the Demat Request form (available with each DP) and provide the original certificates. Each security type has its own International Securities Identification Number (ISIN). Therefore, the investor will need to fill out separate forms for each security.

After the DP has verified all documentation, the DP updates investor account and the Depository takes note of any changes.

A demat security can be converted into a physical record by rematerializing, which is similar to dematerialising. The ISIN is required to complete a Remat Request form.

3. Collateral to loan

When applying for a loan, the collateral can be the value of security holdings.

4. Corporate actions

The company is linked to the securities in the demat bank. The centralised system automatically updates the security status and notifies the investor whenever there is a share in equity split, bonus issued, or any other action taken by the company. An investor can easily keep track of their investments by setting up a demat account.

5. Freeze the account

This facility is only available if you have certain securities in your demat account (and not zero balance). It can also be used if the investor anticipates that any untoward activity will occur. Your demat account can be frozen in the same way as a bank account, or credit card.

6. E-facility

The NSDL facilitates quick transactions by allowing the investor to complete a transaction and then submit their e-slips to their respective DP.

Types of demat accounts

Depending on the resident status of the investor, there are three types demat accounts that can be opened in India.

All Indian investors can open a regular Demat account. To open a regular Demat Account, you can contact any Depository Participant (DP) that interests you. There is no international fund transfer. This account is different from the others.

Repatriable Demat account. NRIs can open this account if they have a nonresident rupee account. This account is able to transfer funds internationally.

Non-repatriable Demat Account - Indians who have a nonresident ordinary rupee account (NRO), can open this Demat type account. This account does not allow international transfers of funds.

How do I open a demat account?

You may now be more inclined to opening demat account. It is simple to open a demat account. You can do it online or offline. Let's look at offline methods to open a demat bank account.

1. Choose a Participant in a Depository

After comparing the benefits and services offered by different DPs you can choose the best DP for you.

2. Fill out the application form

To open a new demat account, you will need to complete an application form. You will also need to provide a list KYC documents, such as an Identity Proof, Address Proof or PAN card.

3. Verification process

A list of rules and regulations will be provided to you to ensure ethical and legal trading and to clarify any questions that you might have about holding a demat account or the various functions it serves. Your KYC documents and identity will be verified by the DP. The demat account opening fee will be charged to you. The fee will vary depending on the DP's current policy. The fee varies depending on the DP.

4. Final approval

After all your documents have been verified and all formalities are complete, your new demat account can be opened. Unique Identification Number will be assigned to your account. 

How do I open a demat account online

You can open a demat account in a much more efficient way. Equipped with only a computer/laptop/tab/smartphone, you can open your demat account in a few minutes.

These are the steps you need to take in order to open an online demat account:

1. Go to the official site of your preferred DP.
2. Simply fill out the lead form to request your name, contact number, and hometown. On your registered mobile number an OTP will be sent.
3. To proceed to the next step, enter the OTP. Complete your KYC information, including date of birth, PAN card details and contact details, as well as bank account details.
4. Your demat account has now been opened! Details such as your demat account number will be sent to you via email and mobile.

Multiple demat accounts can be owned by an investor. You can have multiple accounts with the same DP or with different DPs. Multiple demat accounts can be opened as long as the investor is able to provide all required KYC information.

Eligibility for Investor

Anyone who is a registered Indian resident and has the required documentation can open a demat bank in India. Even non-resident Indians are allowed to open a demat account, subject to certain restrictions.

A demat account may have up to three account owners: two main account holders and two joint account holders.

Like bank accounts, you can also nominate a beneficiary in the event of your death. Joint account holders are encouraged to nominate a beneficiary. You can change or update the nominee as you wish.

List of KYC documents that are accepted

You will need certain documents to open a demat bank account. One proof of identity and one of your address will be required. Below is a list with acceptable documentation that you can use:

Proof that you are an individual

1. Passport
2. Driver's License
3. Voter's identification
4. IT returns
5. Verified copy of the phone/electricity bill
6. PAN card
7. Bank attestation
8. A photo ID card issued to you by the central or state government
9. ICAI, ICWAI and ICSI issues identification cards with photographs

Proof that is your address

1. Voter's ID
2. Ration card
3. Passport
4. Driving licence
5. Bank passbook/ bank statement
6. Agreement for leave and licence/ agreement for sale
7. Original copies of residential electricity and telephone bills verified
8. Self-declaration by High Court/Supreme Court Judges
9. A photo ID card with an address issued by a central government or state body
10. ICAI, ICWAI and ICSI issue identification cards with a photograph and an address.

There are different charges that come with a demat account

The fee will vary depending on the policy of the DP. Usually, the fee includes a one-time account registration fee, an annual maintenance fee, dematerialisation fee, and a transaction fee/commission for every transaction that is made by the DP.

The account opening fee is usually waived, while the dematerialization fee may not be charged at all.

Transferring shares between participants in the Depository

A transfer of securities from one demat account may be desired by an investor. If the demat accounts are operated by different DPs, but they are on the same central depositories, then the investor must fill out the Intra Delivery Instruction Slip. Then the slip should be submitted to their DP. If the DPs reside at different central depositories, the investor will need to fill out the Inter Delivery Slip.

The investor must submit the DIS at the right time to execute the DIS. This ensures that the transfer is completed on time.

The broker handling the transfer might charge a fee.

There is a difference between a trading account and a demat account

Demat and trading accounts both deal with the same elements, financial securities. A demat account may hold securities; however, a trade account allows investors to buy, sell or trade in these securities.

A demat account can be opened without a trading one, but a trading account cannot be opened without a demat.

How do I open a trading account

Registering with the stock exchange requires that you have an active trading account. Only if you have an active trading accounts can this happen. Here are the steps for opening an online trading account if you want to trade.

1. Compare the brokerage rates and services offered by different registered firms with SEBI.
2. Choose the one that fullfil your needs.
3. Complete the application form for an account along with any KYC documents.
4. After verification, you will be emailed your trading account details.
5. Trade away!

Trading with demat and trading account

You can now engage in online trading once you have both a trading account and a demat. Let's look at two scenarios to see how trading and demat accounts interact to allow you to trade financial securities.

1. If the investor wishes to buy

You can place an order for shares by accessing your trading account. The order is processed at the stock exchange and the shares purchased are credited to your demat account.

2. If the investor wishes to sell

You can place an order to sell x amount of a security from your trading account. This is done at the exchange level. Your demat account will be updated to reflect the deducted securities.

Depending on your broker/firm's policy, trading can be done online or over the phone. Your broker will need your account details to complete the transaction.

Before you can trade, the exchange verifies your account information. It will verify that the shares are available, take note of the market price and then execute the trade.

It is recommended to link your trading and demat accounts before you begin trading. This will ensure that you don’t have to provide account details every time you make a transaction. To remove additional stakeholders, it is a good idea to link your trading and demat accounts to the same company.

What to do when you open a Demat

You should be aware of certain important points if you're a new market investor. These are some of them.

Linking is crucial: Opening Demats is only half the job. You will need a trading account to start trading. Demat account without a trading account is just a depository account that stores your investments.

Know the charges. You should already be aware that fees can vary between brokers depending on what type of services they offer. You can choose between a full-service or discount broker based on your trading style.

Correct data update: Double-check all details before opening an account. Your application will be rejected if there is any mistake. To keep receiving updates on your account, you will need to update your information with your DP.

Add nominee: Naming a nominee is an important step that we often forget, but it is essential. You can eliminate many hassles later, such as transferring shares or adding a nominee to your Demat. It is always a good idea for a Demat to be opened with a nominee.

Keep your eyes peeled: Most DPs send regular activity and transaction updates via SMS and email to their customers. The demat account is safe, but they are not protected against fraudulent activity. Investors must be vigilant and take prompt action to ensure that the account is monitored and updated.

You now have an idea of the basics of demat and trade accounts and how to open one online. It takes only 15 minutes to start trading!