The best Demat account acts as a safe-deposit box that holds the securities. It means that the securities are kept in the name of the Demat account holder instead of physical custody of any bank or broker.
The whole process of dematerialization started functioning with National Securities Depository Limited (NSDL) taking the lead. The trading platform provider CDSL now serves as a settlement guarantor for dematerialized securities traded on NSDL's platforms.
Demat Account - The Fundamentals
A dematerialized security is an electronic certificate that depository participant issues to investors. So from this point, we can say that Demat Account online or DD Account is an electronic record of your shareholding maintained with your broker, which you can open online or by visiting the branch office of your broker.
1) The most crucial thing you must keep in mind is that your share certificates should always be kept safe and secure. It is also a good idea that you keep multiple copies of the share certificate for the sake of your safety.
If one of the copies gets lost, you will have other copies to show to authorities. You should take a printout of the share certificate and keep it safely in your locker or any other secure place where no one can find it.
2) If there is any change in name or address, once again, make sure that you immediately change it in your Demat account so that they do not send any wrong information to anyone else. If there is any change in balance or some shares get transferred from your Demat account to someone else's account.
1. Do not forget to dematerialize your shares. This is easy to do if the broker sends you a reminder, as it is your responsibility, not the brokers.
2. Do not invest more than what you can afford to lose. A good rule of thumb is to keep your investment amount at a level that would not impact your lifestyle if it comes to an end.
3. Do not get greedy and invest without proper research or knowledge of a company's fundamentals just because some new investor or adviser is promoting it to you. After a thorough analysis of its financial status, management track record, and prospects.
4. Do not open multiple accounts – You need to open only one Demat account with one brokerage firm to trade in the Indian stock market. If you have numerous Demats, it can confuse the brokers and result in many hold-ups for your transactions.
5. Do not share your password – Never share your password with anyone because if someone gets to know your password, they will be able to do all transactions from your Demat account, which will be very risky for you.
6. Do not misuse credit limit – Your credit limit should be used only when your transaction amount is more than Rs 1 lakh. It means you should use credit cards only if there is a genuine need for them because frequent usage of credit cards can increase brokerage charges and result in a reduction.
7. Do not trade excessively, as this can lead to unnecessary losses. The finance ministry has set a limit on how many stocks and shares one can sell in a day which is 1000 per company and 2000 for all other companies. Many brokers also have their limit for daily trading, which varies from broker to broker.
1. Keep your holdings up-to-date. If you buy/sell securities or change addresses, it is imperative to inform your broker immediately to make the necessary changes to avoid losing track of your holding entirely.
2. Protect the physical certificates. If you want the share certificate for any reason — for instance, if you are going to show it as collateral — then it is essential that you keep them somewhere safe and secure where nobody can access them except for you.
3. Keep your investments simple by avoiding the temptation of investing in multiple companies, sectors, and instruments. This will prevent you from getting confused and losing money if your investments fail.
4. Track your investments regularly by following the current prices in the market. This will help you identify emerging opportunities quickly. Also, you will be able to stay invested in the right stocks/instruments when prices are low and exit them early when they have reached their peak and before they fall back down again.
5. The other important document that you need to keep handy is the acknowledgement slip given to you by your broker when you sign up for dematerialization services. This acknowledgement slip contains all the details. So make sure you keep them safe.
6. Ensure that you have a PAN card. The bank will insist on it before opening your Demat account online. This is to ensure there are no fraudulent transactions at one of the many branches of these banks across the country.
7. The securities must be either equity shares or a unit of an ETF, or units of UTI, NFO, or Mutual Fund schemes listed on the stock exchanges like BSE, NSE, etc.
A Demat account is an essential tool specifically for stock market investors. If you are new to the trading world, you must know that an online Demat account is not mandatory.
This guide on Dos and Donts for Demat account in India will help you tackle everything, right from selecting the best Demat account to seeding TIN and various documentation required for opening, operating, and closing of Demat account.