The history of Demat accounts in India dates back to 1996 when it was introduced for trading on the National Stock Exchange (NSE). The Securities and Exchange Board of India (SEBI) has it mandatory for all share traders to hold a Demat account. If you are a novice to Demat accounts, here is your complete guide to it.
What is a Demat Account?
Demat is an abbreviated form of Dematerialised. A Demat account is basically an online account to hold the shares. You can hold your shares, mutual funds, government securities, IPOs, bonds and debentures in a digital format instead of physical form in a Demat account.
Benefits of Demat Accounts
Demat accounts are popular for numerous advantages they offer over the physical form:
- Quick and hassle-free transfers of shares due to reduced paperwork.
- Lower cost of share transfers as there is no handling or stamp duty charges.
- Elimination of risks of theft, forgery, postal delays, forgery, and loss, usually associated with physical shares.
- Ease of digital pledging to access loan against securities.
- No conditions attached with odd lot trading.
- Easy online tracking of share transfers and their performance.
Types of Demat Accounts
There are mainly three types of Demat accounts:
Regular Demat Account
Resident Indians can open this account.
Repatriable Demat Account
If you are a Non-Resident Indian (NRI), you can make investments in the Indian Share market via a Repatriable Demat Account. This Demat account enables you to transfer money abroad. However, you would also need to open a Non-Resident External (NRE) account with an Indian bank. A Portfolio Investment Scheme (PIS) account also needs to be opened to invest in shares of Indian companies or trade in the secondary market as an NRI.
Non-Repatriable Demat Account
This is also for the NRIs but with a condition that you cannot transfer the funds abroad. You need to open a Non-Resident Ordinary (NRO) account with an Indian bank for this.
How to Open a Demat Account?
If you have a query about how to open Demat account then You can open single or multiple Demat accounts in a few easy steps:
- Choose a Depository Participant (DP)
A DP, also known as a stock broker acts as an agent between you and depositories such as the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). Depositories hold your Demat securities.
- Complete the Account Opening Formalities
You will need to fill an account opening form and submit Proof of identity, Proof of Address, Bank proof, photo and signature, after which DP might do an in-person verification or online identity verification.
- Get the Demat Account
After you complete all formalities and your application is approved, you will get a 16-digit unique identification number for your Demat account along with internet login details and password for trading and other details.
What are the Charges for Demat Account?
The types, amount and waiver of Demat account charges differ from one DP to another.
Usually, the charges may include:
- Account opening fee
- Buying and selling charges for every transaction (Brokerage)
- Annual maintenance fee
- Dematerialisation (Converting physical shares to digital format)
- Rematerialisation (conversion of digital securities in the physical format)
Demat accounts are a convenient facility to eliminate risks associated with trading and managing physical holding of securities. It is advisable that you choose a DP who holds a good reputation in the market, has a proven track record and offers the low charges. There is an emergence of discount brokers who offer exceptional service quality level along with flat brokerage fee per trade (instead of volume-based brokerage fee). Using their Demat account service can help you maximise your profits from trading.
Disclaimer: Investments in securities market are subject to market risk, read all the related documents carefully before investing.