It has been a long time since the physical shares were
replaced with its electronic form by the passing of the Depositories Act, 1966.
With the enforcement of this Act everything related to
securities like purchasing, selling and holding of the securities was
dematerialized and made electronic replacing the traditional physical trading
of shares and other securities.
Now, in order to buy, sell or hold securities one needs to
have a demat account. Having a demat account these days is as important as
having a Bank account.
In this article we will discuss the following things for your
is a demat account?
are the uses and benefits of a demat account?
securities can be kept in a demat account?
to open a demat account?
What is a demat account?
or Dematerialized Account allows the investors to hold their shares and
securities in an electronic form thereby making management of securities quick
like a bank account, you demat account holds deposits of your securities and is
debited and credited like a bank passbook.
SEBI mandate in the year 1966, it is compulsory to hold a demat account if you
want to invest your money in the stock market.
are often confused if there is any difference between a demat account and a
trading account or are these two same.
your understanding let us clarify that a Demat
Account is a medium to hold/store the securities that you already have in
your portfolio but cannot be used for buying and selling of securities.
buying and selling securities you need to have a Trading Account. A trading account is like an intermediary between
your bank and your demat account.
What are the uses and benefits of a
demat account offers the following benefits to its holder:
is easier to transact and manage your securities through a demat account as you
can keep multiple securities in a single account.
processing of transaction becomes quick and convenient. The investors need not
visit the company now and invest a lot of time in purchasing or selling
securities. Once an investor buys a share, it will credited to their account
within 2 business days which is quite quick.
buying, selling and managing of securities can now be done online the
geographical barriers are resolved and investors can trade anytime anywhere as
per their need.
are no restrictions on the number and quantity of securities you need to
transact. Earlier if the number of transactions were below a specified lot, the
investors were required to pay a premium for the same.
can keep any types of securities in your demat account.
save on the cost of registrations and dealings as you no longer need to pay
stamp duty for entering in an agreement with your depository.
need not communicate with the companies and go through procedural formalities.
You can simply communicate with your depository and gets things done quickly.
manual paperwork required during trading of securities tis reduced to a great
What securities can be kept in a
can trade following securities or hold and kept them in your demat account:
and many more
How to open a demat account?
a demat account includes certain steps which are not only important but are
also necessary to be followed. The steps for opening a demat account are as follows:
Identify and select your DP: DP stands for Depository Participant who work as the agents
of depositories in India. There are only two depositories in the country namely
NSDL (National Securities Depository Limited) and CDSL (Central Depository Services
Limited). Depositories are the
institutions that hold your securities in a dematerialized form.
DPs on the other hand the
intermediaries between an investor and the depositories.
In order to offer depository related
services DPs are required to register under Section 12 (subsection 1A) of the
It is completely a choice of the
investor to select a DP based on the features they offer like demat charges,
location, customer support services etc.
Documents required to open a demat account and the procedure to be
following four documents are required for opening a demat account: Id proof and
proof of residence, PAN Card and Aadhar Card.
You need to submit a self-attested
photocopy of all the documents which are required for opening a demat account.
Sign the DP Agreement: along with the documents mentioned above, the investors are
required to submit a DP agreement. It is an agreement between the investors and
their DP and each page of the agreement should be signed.
The agreement varies from DP to DP
however, SEBI has set outlines for such agreements. It contains a list of
responsibilities and obligations for a demat account holder.
The agreement also contains a
schedule of charges to be applied by the DPs.
Filing nomination along with the demat account opening form: For all your financial assets
including a demat account you must fill a nomination form at the initial stage
itself. Nomination means that in case of your demise, the securities will
delivered to the beneficiary.
Setting up the demat account with your DP: After the documents and the
agreement are submitted, the DP will verify them. It is then forwarded to the
compliance department for compliance related approvals. Only after the approval
from the compliance department the demat account is opened.
Once the account is opened your DP
will grant you a code which is called the Beneficial Ownership Identification
Number or “BO-ID”.
If you purchase any financial
security your demat account will be credited. If you sell your securities your
demat account will be debited. The money raised through it is collected by your
Signing a Power of Attorney with the depository participant: Signing of a power of attorney is
somewhat mandatory. POA is not necessary for an investor, but in case of trader
it is important to sign a Power of Attorney during the time of opening a demat
account. This POA empowers your broker to automatically debit your account when
you sell your securities.
Opening a Digital demat account through Aadhar: With the advancement of technology and
everything getting online it is now possible to open a demat account as well
using your Aadhar Card authentication.
In order to open a demat account
online through your aadhar card, you must be sure that your aadhar card is
mapped with your bank account. Also the mobile number for your aadhar card and
demat account opening should be the same. The authorization and verification
will be done through the OTP sent on your registered mobile number. In this
case the only documents that you need to submit to your broker are a copy of
your PAN Card and a cancelled cheque.
Next an in-person verification is
done either through a conference call or by visiting at the nearest customer
point of the selected DP.
After these two levels of
verification your demat account is activated.