It has become much easier to enter the stock market in India due to the arrival of Demat accounts. Whether you are an experienced investor or a beginner wanting to open a Demat account, understanding the important facets of Demat accounts is essential. This account permits investors to hold shares and securities in an electronic form, thus enabling the reduction of risks involved with the holding of physical certificates. Here are seven things every Indian should know regarding Demat accounts:
- What Is a Demat Account?
A demat account is an electronic account that holds shares, bonds, mutual funds, and other securities in a digital format. By allowing customers to buy, hold, and sell securities through this electronic system, it has removed the requirement of handling physical share certificates in their transactions. In India, the Securities and Exchange Board of India (SEBI) has made it mandatory to open a demat account to trade in stocks, which has thus become the necessity for the investor.
- How to Open a Demat Account
To open a demat account, a client has to approach a Depository Participant (DP) registered with either of the two central depositories in India, namely the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL). The procedure is very simple:
Select a DP (banking, brokers, or financial institutions);
Submit KYC documents (PAN card, Aadhaar card, nature of residence, and passport-size photographs);
Sign this agreement with the DP
Receive login credentials to go online and access the account.
Most brokers offer an online method for opening a demat account, rapidly facilitating the processes while providing a degree of convenience.
- Demat Account Types
There are primarily three kinds of demat accounts existing in India.
Regular Demat Account: This is exclusively for Indian resident investors who trade in equities and other market instruments.
Repatriable Demat Account: This category of accounts is specifically meant for Non-Resident Indians (NRIs) to invest through repatriable funds outside India.
Non-Repatriable Demat Account: This type of account is for Non-Resident Indians (NRIs), wherein such funds cannot leave India. It is necessary to connect with a Non-Resident Ordinary (NRO) bank account.
- Mandatory Requirement for Stock Market Investments
Demat accounts are a necessity for trading and investing in the Indian stock market. Though the shares can be said to be in a demat account without any trade done on them, a purchase or sale of shares listed on the stock exchange cannot be done without a demat account. Demat accounts are also good to have in case you want to invest in Initial Public Offerings (IPOs) in electronic form, exchange-traded funds (ETFs), or mutual funds.
- Demat Account Charges
The charges for opening and maintaining a demat account differ from one DP to another. Such charges are:
Account Opening Charges: Some brokers allow free account opening; others charge a nominal fee.
Annual Maintenance Charges: These are yearly fees charged for maintaining the account, which usually vary from ₹300 to ₹1,000.
Transaction Charges: These are charges for buying and selling of securities.
Custodian Charges: This covers charges levied by some DPs for administering securities in an account. It is advisable to compare different service providers and select one that aligns with your requirements and budget.
Demat Account Benefits.
A demat account holder can enjoy many benefits, including:
Safety and Security: There are no risks involved, such as theft, forgery, or loss of physical share certificates.
Easy and Quick Transactions: Buying and selling shares is simplified.
Automatic Credit of Bonuses and Dividends: Corporate benefits such as dividends, stock splits, and bonuses are credited directly into the demat account.
Less Paper Work: Physical documents are eliminated.
Access to Multiple Securities: You can hold more than stocks in a demat account. It allows you to hold bonds, mutual funds, government securities, and ETFs all in one place.
Linkage of Trade Account with Demat Account.
Hold your securities in a demat account while the trading account enables the buying and selling of the same on a stock exchange. Most brokers provide a 2-in-1 or 3-in-1 account that merges with a demat account to provide an option for a trading and bank account, resulting in a hassle-free trading experience. It is beneficial to opt for a platform that offers ease of use and transparent charges to support your trading activity efficiently.
Conclusion.
For someone keen on investing in the stock market, a demat account acts as the gateway to entry. The processes around holding and managing securities have become much easier, and the transaction is much safer and more convenient. Whether it is an individual or an NRI investor, knowing the key concepts surrounding a demat account can help make smart investments.
