Demat Account Definition
Demat is the abbreviation for "Dematerialization", which means to convert physical shares and securities into electronic form. Demat Accounts are required to hold shares in electronic form instead of paper form. Demat Accounts keep the shares safe, thereby preventing loss of shares or risks related to forgery. It is an easy method to trade securities quickly. A Demat account and a trading account are necessary to carry out the trading of shares in the stock market.
As we proceed further, it is essential to know who is associated with the Demat process. Demat or dematerialization requires mainly four agents or participants:
- Investors - An investor can be the individual, or a partnership firm or a company that is the beneficial owner of a Demat account where the shares and securities are held. The investor's name is linked with a depository for holding securities in Dematerialized form.
- Depository - It is an organization that acts as a storehouse for the investor's securities and shares in electronic form. It acts as the connection between listed companies and the shareholders who buy shares issued by the company. There are 2 depositories in India:
- NSDL (National Security Depository Ltd)
- CDSL (Central Depository of Securities India Ltd)
- Depository Participants - The Depository Participants or DP are registered agents of the Depositories. SEBI has registered them, and they play the role of an intermediary between the investor and the depository. They are also known as the stockbrokers of the depository. The investor has to open an account in a depository through the help of a DP.
- The Issuing Company - This is a legal entity or company which is enlisted in the depository. The issuing company creates, registers and sells securities to the public for funding its operations. The company mainly issues securities like bond, shares, commercial paper, etc.
Process of Dematerialization(Demat)
The process of dematerialization is detailed and crucial for investors to understand. The following section contains the process of dematerialization:
1. Investor surrenders all the physical certificates owned by him to the DP for dematerialization
2. The DP updates the depository about the request of conversion of shares into electronic form
3. The DP submits the certificates to the registrar of the Issuer Company
4. Registrar confirms the request for dematerialization after consulting with the depository
5. The registrar of the Issuer Company dematerializes the securities and certificates post-confirmation
6. The registrar updates the account and informs the depository about the completion of the dematerialization process
7. The Depository updates the investor's account, and the DP is duly informed of the act
8. The DP updates the Demat account of the investor
Process of Opening a Demat Account:
The first step of dematerialization is the opening of a Demat account. It is a myth among people that this is a complex process. The process of opening a Demat account is as follows:
Step 1: Selection of DP
Step 2: Fill out the Dematerialization Request Form
Step 3: Submission of necessary documents for verification
Step 4: Signing of agreement between an investor and the DP
Step 5: Verification of Documents
Step 6: Creation of the account
Types of Demat Accounts
There are three types of Demat Accounts:
- Regular Account - A Regular Demat account is a standard Demat account that Indian investors (who reside in India) use. SEBI recently introduced a similar Demat account known as Basic Services Demat Account (BSDA). The only difference between a Regular Demat account and BSDA is the maintenance charge. The maintenance charge of BSDA is zero if the amount is between ₹ 0/- to ₹ 50,000/- and a minimal amount of INR 100/- is charged if the amount is between ₹ 50,000 to ₹ 2,00,000. Every broker has to follow similar maintenance charges for BSDA.
- Repatriable Account - Non-Resident Indians use this account, and it plays an active role in transferring funds abroad. The Repatriable account needs to be linked with the NRE bank account. However, repatriation depends upon the laws of the host country and the foreign country, and the transference of funds is possible if laws allow it and if the governments are not impeding the transfer process.
- Non-Repatriable Account - This is a variant of Repatriable Account, and Non-Resident Indians also use it. However, funds cannot be transferred abroad through this account, and it needs an associated NRO bank account to function effectively.
Why choose 5paisa Demat account?
There are many reasons to choose 5paisa Demat account. Some of them are:
Customers of 5paisa can open a free Demat account. Furthermore, there are no fixed DP AMC fees; you only pay when you trade.
Trading in large amounts for a flat fee of Rs.20 saves you over 98 percent on brokerage fees.
To access and manage all of your investments in one spot, use our fully paperless and best Demat account opening process based on Aadhaar.