All You Need to Know About Demat Accounts.
Are you an investor wondering what a Demat account is? Keep cool, In the article below we will be exploring what Demat accounts are, their advantages, how to open them, how to transact with them, their different types and so much more. It is also important to note that for one to trade in securities in the Indian stock market, they’ll need to open up a Demat account.
What is a Demat Account?
A Demat or dematerialized account is very similar to your normal bank savings account. Just like a typical bank savings account allows one to keep their money safe in electronic format, a demat account also allows investors to keep bonds, stocks, mutual funds, debentures, shares etc. in electronic format. It is an effective alternative to the physical holding of securities in the form of certificates of ownership. Demat accounts can be used to store all the securities you transact during online trading all in one place.
In India today, a company enlisted in the National stock exchange is required by legislation to offer securities in either physical or dematerialized form. Securities in physical form, in this case, means actual certificates give as a proof of share ownership. Dematerialization, on the other hand, refers to the process of converting securities certificates into an electronic form for the purpose of holding them in a Demat account.
Why a Demat Account?
There are several reasons why you should be opening a Demat account apart from just being able to trade in the India stock exchange. The following are some of the aims and objectives of Demat accounts as well as their benefits over and above physical security certificates.
Aims and Objectives of Demat Accounts.
1. Lowering Costs.
Transacting with physical security certificates causes investors to incur different unanticipated costs such as stamp duty, handling cost among others. A Demat account completely eliminates these extra costs because the exact transaction cost can be determined beforehand and due to ease of handling.
2. Reducing Paperwork.
Back in the day, stock markets only transacted shares by way of physical receipts or certificates. This obviously required a lot of paperwork that led to slow trading activities because no transaction could be done without parties first presenting these certificates. In Demat accounts, all your securities are placed in one place in an electronic form. This reduces the amount of paperwork required and makes transactions less tiresome and convenient.
3. Cutting Down of Risks.
Trading with physical securities is rife with threats and security risks; securities can be stolen, forged, suffer damage, lost or misplaced. Opening up a Demat account completely eliminates these risk and gives investors peace of mind.
4. Guaranteeing Instant Transactions.
Physical delivering security certificates often take weeks due to the bureaucratic system that needs to be fulfilled. Trading with a Demat account, on the other hand, guarantees Instant transaction because all the securities are pooled in one central place and dealt with electronically. Delays are thereby completely done away with.
Benefits of Using a Demat Account.
Opening a Demat account has various undisputed benefits compared to holding physical securities to the everyday investor. These include:
1. It is both easier, more convenient, and simpler to invest in online security trading when in the possession of a Demat account.
2. In the past, transactions with an odd number of shares or even one were impossible. With the Demat account, on the other hand, one can trade with any number of securities they desire without any restrictions.
3. The security of your securities is boosted when you have them in a Demat account. This is because they are all pooled in one place and are in electronic form. No matter what happens to the bank or depository, you can be assured that your securities remain intact.
4. With a common demat account for all your securities, you don’t need to constantly update your details for all of them or provide details all over again when trading in different securities. This is because the Demat account automatically gives your details to companies you are transacting with.
5. Demat accounts provide a common banking solution for all your securities no matter their type. This is very convenient as well as secure.
How to Open a Demat Account.
Depositories and Depository participants(DPs) are some of the terms you need to be aware of before you open a Demat account.
Depositories refer to institutions that hold your electronic securities and permit you to do transactions. India has two principal SEBI registered depositories namely: the Central Depositories Services Limited(CDSL) and the National Securities Depositories Limited (NSDL).
Depository participants, on the other hand, refers to middle-men or agents that work in lieu of the depository institutions. Their sole purpose involves facilitating the opening of Demat accounts by investors. They include banks, financial institutions, custodians, and brokers.
The following steps must be followed in order to successfully open a Demat account;
1. Choose your desired depository participant.
2. Fill out an account opening form submitted and surrender all the necessary documentation.
3, Engage in an in-person verification activity conducted by one of the depository participant staff so as to verify the details you filled in.
4. Once the application process has been concluded the Dp will provide you with a unique user ID or account number which can be used to access your online demat account.
5. You may be required to pay with some fees in order to facilitate the account creation process although this will depend on you Dp, Demat account holders, however, are required to pay account fees going forward such as account Maintainance fees and maintenance fees. The rates normally vary for different DPs.
6. There is no minimum amount of securities that need to be present in your account for it to be maintained.
Documents you Need to Open a Demat Account?
1. You need to provide a proof of identity documents such as voter’s ID, bank attestation, PAN card, IT returns, driver’s license, telephone bill, passport, electricity bill, ID cards or Aadhaar.
2. You need to provide a proof of address documents such as Ration card, bank passbook or bank statement, driving license, residence telephone bills, passport, voter ID card, and verified copies of electricity bills.
Different types of Demat Accounts.
In India, Demat accounts are typical of two kinds; the NSDL and CDSL issued one. But how can one distinguish between either of them? While giving a call to your depository participant and asking them what type of Demat account you have is a good option, you can find out your account type at the comfort of your couch.
1. National Securities Depository Limited(NSDL) Account: A Demat account belonging to NSDL typically starts with the alphabets “IN” followed by a unique set of 16 numeric digits. eg. IN1234567890345676
2. Central Depository Services Limited(CDSL) Account: A demat account belonging to the CDSL features an account number that is entirely numeric. eg. 1234567890098765