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The number of demat accounts in India is constantly on the rise.
According to recent data, 25 million demat accounts were added in the 2022-23 financial year. That’s an average of over 2 million new accounts every month. The demat account frenzy peaked in May 2023, when a remarkable 2.1 million accounts were added in a single month.
If you are considering jumping on the stock investment bandwagon, a demat account is a must-have. But hold on a second—what exactly is a demat account, and how does it work? Let’s break it down for you!
What is a demat account?
In 1996, India introduced the demat account for trading on the NSE. It operates similarly to a bank account, holding share certificates and other securities in a completely electronic format.
Demat accounts, which are also known as dematerialisation accounts, simplify the process of holding investments such as shares, government securities, bonds, mutual funds, and exchange-traded funds (ETFs). They eliminate the risk of misplacing these investments by holding them in electronic form.
How to open a demat account?
Opening a demat account is relatively easy. The process remains almost similar whether you are opening an account online or offline. Here are the steps to open a demat account offline-
- Select the depository participant (Registered brokerage firms)
- Fill up the application form and submit KYC documents
- Allow the brokerage firm to verify your application form and KYC documents
- If everything is clear, your demat account will open and you will get a Unique Identification Number (UID)
The same procedure can be followed by visiting the depository participant’s website, to open a demat account online.
What are the documents required to open a demat account?
- Aadhar Card
- Pan Card
- IT Returns (minimum 2yrs)
- Verified copy of electricity bill
- ICAI, ICWAI, ICSI, bar council etc, issued identification cards with photograph
- Bank Attestation
- Passport size photos
- Other documents as required by your broker
Benefits of demat account
- No more paper certificates
Paper certificates are now replaced by electronic certificates, saving traders from the risk of damage and loss of the document.
- Easy to store
Demat allows investors to store as many shares as they want. It also helps in the quick transfer of shares.
- Easy to access
You can access your shares using any device or from any location. Investing in a future with financial security is now easier and more accessible than ever, thanks to a demat account.
How to use a demat account?
- Use your client ID or account number to access your online demat account.
- Once you open your portfolio, you will be able to view holdings available in the form of stocks, bonds, or mutual funds.
- You must also open a trading account after opening a demat account to engage in trading.
- Following account opening, you must link your bank, trading, and demat accounts.
- Once your accounts are linked, you must place an order through your trading account to begin trading. The fair trading exchange will then be connected to you by your broker so you can place your trade there.
- The exchange will electronically process your order.
Features of demat account
- Share transfer- Under this, transferring shares is as simple as sending your duly signed depository participant a Delivery Instruction Slip (DIS).
- Loan collateral- You can use it to secure a loan from a financial institution by pledging the securities you have in a demat account.
- Temporary freezing– It allows you to keep your demat account frozen for a certain period. This option, however, is typically only made accessible if you have a certain quantity of shares available.
- Quick transfer of benefits– Benefits are sent quickly with the best demat accounts, including dividends, bonus shares, interest, and refunds.
- Loan against securities– You can seek a loan against securities in your name.
Final thoughts
A demat Account is your ticket to the world of stock trading and investments. With its convenience, security, and versatility, it’s no wonder millions of new investors are jumping on the bandwagon. Are you ready to embrace the world of hassle-free trading? With a demat account by your side, the answer is a definite yes!
FAQs
The SEBI recommends waiving the maintenance charge for accounts having a balance of less than ₹50,000. The usual annual charge for maintenance ranges between ₹300 to ₹900. Some brokerage firms have zero charges for the first year, while some brokers have high charges depending on the transaction value.
There are different types depending on the features they offer. Some of them are:
Regular demat accounts: These are usual demat accounts with a trading account linked, that most Indian investors use.
Basic Service Demat Accounts (BSDA): These are simpler versions of regular accounts offering limited facilities, for investors who have lesser requirements.
Repatriable demat accounts: This is a demat facility exclusively for Non-Resident-Indians to invest in the Indian market.
Yes, you can hold multiple demat accounts. Holding 2 or more demat accounts is legal in India. However, you cannot hold more than one demat account with the same brokerage firm or depository participant.
While demat accounts are generally seen as beneficial, they have limitations too. The maintenance charge can sometimes be expensive, impacting the investor’s profits. Investors must also be tech-savvy to handle the account and constantly supervise the account to ensure there are no incorrect transactions by the broker.
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