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Understanding the Demat Account

“Dematerialization is the mechanism by which a customer may have physical certificates of securities converted into electronic balances,” according to the National Securities Depository Ltd. (NSDL).

In other words, Dematerialization is the process by which the physical shares and securities are converted into digital form for making buying, holding and selling of shares easier and faster.

An investor who intends to trade in dematerialized securities must first open a depository participant account (DP). A Demat account has two components. You may either send a DRF to dematerialize your physical shares or buy and sell shares in Demat form directly through your Demat account.

The Demat account is credited with all securities purchases, while the Demat account is debited with all securities sales. Bonuses and split shares are credited to the Demat account automatically.

A Demat account is a digital platform where you can keep track of your stocks. In addition to stocks, you can now keep shares, mutual funds, gold bonds, government securities, and insurance plans in your Demat account.

Your Demat account is paid on T+2 day (2 business days after the date of transaction) when you buy shares in your trading account. When you sell stocks, your Demat account is debited on the T+1 day. You can take a Demat account as a bank account where your investments are kept secure.
 

Stepwise guide to opening a Demat Account

 

Procedure of Opening a Demat account:

Step 1: You have to select Depository Participant (DP)
The very prominent first step to open a Demat account is to choose a depository participant (DP). You can choose the best DP services that are available in India through banks, stockbrokers, and online investment platforms. While selecting a DP, look for a service provider whose offerings and features fit your needs and specifications.

Step 2: Fill out and submit the Demat Account Opening Form
Go to your DP’s website and fill out the online Demat account opening form to open a Demat account. Many depository participants allow you to open both trading and Demat accounts simultaneously.

Step 3: Comply with KYC (Know Your Customer) requirements
After you’ve completed the Demat account application, it is time for the Know Your Customer (KYC) requirements. It requires scanned copies of KYC documents such as proof of identity, proof of address, bank account statement, and proof of income. It’s better to have all of the necessary documents nearby before applying, as this will help you move through the process more quickly.

Step 4: Complete the Verification Procedure
After providing the KYC details, you have to go through an ‘In-Person Verification’ process (IPV). This is a necessary exercise that you must complete in order to check the validity of your records. You may be needed to appear in person at either of your service provider’s offices, depending on your DP. Many depository participants, on the other hand, now provide IPV services online using a webcam or a smartphone.

Step 5: Sign Copies of the Agreement
Post verification, you’ll be asked to sign a contract with your Depository Participant. This agreement enumerates all of the depository participant’s and investor’s responsibilities and rights.

Step 6: Get Your BO ID Number after the above processes are done
After signing the agreement, your DP will begin processing your Demat account application. You will be given a special Beneficial Owner Identification Number once your application has been approved (BO ID). You can access your Demat account using this BO ID.

 

Documents required for opening a Demat account

The documents required to open a Demat account is minimal. This is something that makes it easier for new applicants to follow the procedure from beginning to end without experiencing any difficulties. Only the documents mentioned below must be submitted.

  • A copy of your checking account passbook or bank statement as evidence of your bank account (not older than 3 months)
  • Identification proof: a photocopy of your PAN card
  • Proof of your earnings: a copy of your most recent pay stubs or your tax return (mandatory for currency and derivatives segment)
  • Cancelled Cheque
  • 2 passport size photographs
  • Proof of address: A copy of any of the following documents will suffice as proof of residency.
    • A phone bill from a landline 
    • A bank passbook or account statement (not older than 3 months from the date of receipt of documents)
    • Voter identification card 
    • Aadhaar card 
    • Gas bill 
    • Apartment maintenance bill 
    • Ration card 
    • Registered lease agreement 
    • Electricity bill
    • A valid driver’s license 
    • A valid passport

 

Types of charges associated with opening a Demat Account

Let us find out the charges and related to operating a Demat Account:
Account Opening Fee

  • Charges for Dematerialization of Share Certificate
  • Charges for Rematerialization of Share Certificate
  • Conversion of Mutual Fund Units
    • Destatementization Charges
    • Restatementization Charges
    • Redemption Charges
  • Safety or Custodian Charges
  • Transaction Charges
  • Postal Charges
  • Annual Maintenance Charges

Check: What is Dematerialisation & Rematerialisation

Requirements of Demat Account

To choose the best Demat account, you must do the following: 

  • Pick a reputable depository
  • Look for a three-in-one service that combines and provides the benefits of a savings account, a Demat account, and a trading account. Having all three accounts in one location makes the whole trading process a lot easier.
  • Examine the multiple charges (account opening fee, annual maintenance fee, transaction fee)
  • Find a depository that doesn’t charge a fee for intraday trading (buying and selling shares on a single day)
  • Consult the depository’s customer service department.
  • Select a Depository participant that enables filling up e-KYC.
     

Why 5paisa?


The following are the benefits of a Demat account:

  1. 0% brokerage
  2. Easy and paperless
  3. All-in-one account

The other benefits are as follows:

  1. Advanced trading platform: Trade with lightning speed on a technically sound online and desktop-based trading platform.
  2. Robust online trading mobile app: Take advantage of our cutting-edge and highly valued Mobile App to enhance your trading experience.
  3. Integrated investment platform: A single, versatile online platform that can handle all of your tradings and investment needs.
  4. Superior analysis and advisory: Take advantage of superior research, AI-driven Robo-Advisory services, and automated Algo Trading.

 

Now that you have read and have got an idea of how to open a demat account, how it works, what are the uses of it, visit out "Open a Demat Account" page and start your investment journey in just few hours.