Demat Account is a repository that stores shares in a digital format while online trading. It holds the shares bought or dematerialized. With the convenience of digital storage, it eliminates the risk of damage and theft, while making tracking and maintenance of shares easier. This article will help you get a complete idea of
what a Demat Account is and how to open it.
What is a Demat Account?
While trading online, you buy and sell financial assets like shares of companies, bonds, mutual funds, etc. Earlier, these assets used to be exchanged via physical receipts called certificates. So, if you bought a share, you had to keep safe with you the paper certificates to denote ownership. But think of it, storing paper certificates was not without difficulties and hassle. Further, the transfer of shares entailed lengthy paper works which were time taking and prone to errors.
Adding to that, there would be a risk with the paper certificates getting lost, or tampered or forged. In India, the Depositories Act was passed in 1996 that led to the setting up of National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CDSL). NSDL commenced operations in 1996 while CDSL began in 1999. Depositories are entities that store the shares in digital format. However, the depositories do not offer the option to open Demat Accounts. For that, the depository participants come into the picture.
The brokers and banks are the depository participants, and they provide the facility to open Demat Accounts. Linked to the depositories, they facilitate the Demat Account opening. Now when the share markets are digitized, it is crucial to have a Demat Account to hold the shares while trading online.
How to open a Demat Account?
To open a Demat Account, you reach out to a depository participant, that is, a broker. You need to fill up the account opening form online and provide your necessary documents, such as PAN card, proof of address, and proof of identity. Demat Account opening process is simple, and you can complete it from home without involving much paperwork.
Here are the key steps to open a Demat Account
Choose a broker: The first step is to find a broker with whom you want to open a Demat Account. Check their brokerage rates for intraday trading, delivery trading and F&O(Futures and Options) trading. Some brokers will charge a flat fee per trade that helps in low brokerage trading, while some will charge volume based brokerage. Also, check the subscription plans and Demat annual maintenance charges(AMC). With some brokers, you can open free Demat Account online and start trading in the stock exchange.
Fill the online form: Most brokers will require you to fill the online account opening form that you can complete in 10-15 mins. You need to furnish your personal details like name and address.
Upload documents: In the form filling journey, you will have to upload documents like PAN Card, and documents for proof of address and proof of identity. Some brokers may also require you to upload bank statements and photographs of your signature.
Digital signing: Most brokers will give you the option to sign your documents digitally through Aadhar. In this, you approve the document through OTP sent on your Aadhar linked mobile number.
Once you are through these steps, you submit the form and wait for a confirmation message from the broker regarding your account being opened. You will receive an account number for your Demat Account along with the login credentials.
Benefits of Demat Account
Here are the 5 key benefits of Demat Account:
It is essential to participate in online trading since it stores the shares bought or dematerialized
It is a safe and secure repository for shares preventing them from the risks of damage and forgery
It is easy to track and maintain
It can be accessed from anywhere, anytime. You can get the details of all the shares you hold, at one place
Since it stores the shares digitally, it saves a lot of paperwork, making the transfer of shares quick and hassle-free.
Note: Investment in the securities market is subject to market risk, read all the related documents carefully before investing.