Without a Demat account, we can’t trade or invest in the stock market. You must have a Demat account to invest money in the stock market. According to the Securities and Exchange Board of India, a Demat account is required for anyone who wants to buy or sell stocks.
This Demat account functions exactly like a regular bank account, and you can receive transactions from your Demat account registered in the passbook just like with a regular bank account. You can keep the complete details of all the transactions, i.e., the shares you have purchased and sold.
When asking, “What is a Demat account?” Suppose you want to respond and comprehend in a single sentence. In that case, a Demat account is an account where you can check your holdings and sell your purchased shares with the help of a connected trading account.
A “Demat” account is a short form of a “dematerialized” account. A dematerialized account allows you to store bonds, ETFs, shares, etc. You can keep bonds, ETFs, shares, and other stock market purchases in a demat account. Both the management and security of this dematerialized account are carried out electronically, similar to your bank account but with electronic transactions, such as stock market purchases.
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NSDL and CDSL are the leading organizations in India that provide demat facilities to stockbrokers. NSDL and CDSL entities are SEBI-registered. By utilizing the services of these organizations, stock brokers offer investors the option of opening a dematerialized account.
- SEBI: The full form of SBI is the Securities and Exchange Board of India (SEBI), which controls stock market transactions, mutual funds, etc. Along with this, protective work related to the stock market, such as investigation of rigging, prohibition of insider trading, fair share transactions, etc., are done by this institution. Along with this, regulatory functions and development functions are also performed by SEBI.
- NSDL: NSDL is a depository of India, and the full form is National Securities Depository Limited. This entity’s main role is to maintain dematerialized accounts, convert physical share certificates into electronic format, transfer corporate benefits electronically, such as bonuses, and convert electronic share certificates into physical share certificates. The National Stock Exchange promotes this institute.
- CDSL: CDSL is a depository; the full form is Central Depository Services Limited. The Mumbai Stock Exchange promotes this organization, and some of the largest Indian institutions, including HDFC Bank, Canara Bank, and Standard Chartered Bank, are shareholders. Similar to NSDL, its primary duties include maintaining demat accounts, converting physical share certificates into electronic form, and converting electronic share certificates into physical form.
Types Of Demat Accounts?
- Basic service demat Account: This dematerialized Account is for the citizens of India who are small investors. Fees must be paid for maintaining the Dematerialised account, but some investors do not regularly invest in stocks, bonds, etc. This Basic Service dematerialized account was introduced to save small investors from paying maintenance charges. Up to a limit, you do not have to pay any costs in this account, but if you hold more than that limit, you have to pay some charges.
- Regular Demat Account: Citizens of India generally use Regular Demat accounts. NSDL and CDSL in India provide regular demat accounts to the people with the help of stock brokers and depository participants. The main objective of these regular dematerialized accounts is to make trading much easier. Today, a regular demat account allows investors to hold their shares electronically. Citizens of India can transfer their holdings from their regular Demat Account to a different institution free of cost.
- Repatriable demat Account: Repatriable demat account is for those Indians who are NRI. For those Indians who have settled in another country, this dematerialized account is available for those who want to invest in the Indian share market from foreign countries. NRI has to open an NRE bank account in India, after which he can easily open a repatriable demat account. If a person wants to open a repatriable demat account, then he has to follow the rules of FEMA (Foreign Exchange Management Act). This account has the facility to transfer your funds abroad.
- Non-Repatriable dematerialized Account: This type of account is also available to NRIs. You must open an NRO bank account to open Non-Repatriable dematerialized Account. You cannot move money to foreign accounts with this type of account, but if you also have an NRE account, it is simple for you to do so. An NRI uses an NRE (Non-resident external) to invest in an Initial Public Offering (IPO). Non-Resident Ordinary (NRO) dematerialized account is to invest in a non-repatriable basic.
How to Open a Demat Account?
Stockbrokers and depository participants both offer the option of opening a demat account. First, we have to choose a DP to open a dematerialized account, and the procedure is simple, like the procedure of opening a savings account at the bank.
- Provide your basic details to DP.
- Need Bank details like a photocopy of bank passbook, cancel bank cheque or bank statement with IFSC code and account number with your name.
- Required documents like address proof (Adhar Card, Passport, Voter ID Card) and Pan Card
- In the next step, you will be asked to provide a signature or thumb impression to verify details.
- After submission and KYC, you will get your dematerialized account.
How to open HDFC Demat Account?
What is the difference between Demat Account and Trading Account?
- Demat Account: The demat Account holds the details of the shares and security deposits you have bought and sold.
- Trading Account: Shares are purchased and sold by using a trading account. Trading accounts and demat accounts are connected. Because of this, every stock market transaction you make is recorded in your dematerialized account.
Both the Demat account and the trading account are linked to each other. This allows you to trade from your trading account, and the details are reflected in the demat account. Banks also link savings accounts to them, allowing you to trade easily by transferring funds from your savings account to your demat account. For example, HDFC Bank connects your savings account, dematerialized account, and trading. You do not need to deposit money in a dematerialized account separately.
Required Documents to open Demat account
- Pan Card
- Address Proof like Adhar card, Voting card, Passport, etc.
- Income Proof like bank Statement, ITR, or last three months’ salary slip.
- Bank account details like Bank Passbook or Cancel Cheque with IFSC code and your name.
- Your Signature
Important things to know about Demat Account
- Ask for your dematerialized account Number right away after opening the dematerialized account and carry it with you in writing. This 16-character number serves as the Beneficiary ID and the Account Number for your dematerialized account.
- DP ID is very important, and it is given to the depositor. This information is very important for you to know.
- The POA number is a part of the Power of Attorney agreement. It is used when you allow the broker to operate your account with instructions and rules.
Indian Depository participants list
- Yes Securities
- Canara Bank
- Bank Of Baroda
- City Union Bank
- UCO bank
- Union Bank
- South Indian Bank
- Bajaj Finserv
- Astha Trade
Please check the CDSL Depository participants list and the NSDL Depository participants list.
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Benefits of Demat Account
- Earlier, a hard copy of the certificate was available on buying shares, which had to be kept carefully. Even today, you can keep a copy of those certificates, but having a demat account does not require maintaining the documents. Due to this, the possibility of missing the documents ends.
- You can easily get the loan facility if you regularly transact in the stock market. You can easily avail of a loan against the deposits in your dematerialized account.
- There is transparency and prevention of fraud.
- Trading is easy, and one can easily do trading through a demat Account.
- Time is saved, and shares can be bought and sold quickly.
- TDS is not payable on demat security.
- There is no separate charge for the hard copy of the certificate.
- Anyone can easily invest abroad.
- Protects against fraud by the broker
- Shares can be transferred in less time.
- You can start trading by buying a minimum of 1 share.
- Can invest in sectors like mutual funds, gold, and ETFs.
- You can start trading in seconds using your mobile or laptop.
- Company Bonus distributions are automatically deposited into your account.
- You can easily close your account online.
Cons of Demat Account
- Annual charges are applicable on Demat Account. These are called Annual Maintenance Charges, ranging from ₹ 200 to thousand rupees depending on your stockbroker.
- If a person buys shares by mistake without KYC, then those shares cannot be transferred to the account.
- It is difficult for those who cannot operate modern machines like mobile or laptops.
- You can easily trade from anywhere with a dematerialized account, and it can increase the addiction to the share market.
- Trading from the Account can be stopped if you do not log in to the Demat Account for a long time, so you have to keep logging in to the demat account from time to time. But it depends on the policy of your Depository participants or broker.
- Due to the ease of trading, there are frequent changes in the portfolio, and instead of investing for a long time, people sell and buy their shares quickly. That’s why there is a decrease in the profit that you can get from the long time investing strategies.
How to Close Demat Account
Account closure procedure may vary from Depository Participant to Depository Participant. But it is almost the same in all the depository participants mentioned below.
- There are two main ways to close a dematerialized account, out of which online dematerialized account closure is the easiest. For this, you have to go to the account settings of your dematerialized account, and there you can see the option to close your account.
- Offline dematerialized account closure is another method, and you can do so by giving your account closure application in the account branch.
You can let us know where you opened your Demat account by leaving a comment below. We will provide all of its information Step By Step in our new post if there is yet to be one on our website that is relevant. You are welcome to ask us any questions about dematerialized accounts in the comments section. I’m anticipating your questions. Thanks a lot!
Demat Account related questions
What are the Demat accounts charges?
Dematerialised account charges depend on the DP and can range from ₹200 to ₹1000. Dematerialised account charges are charged annually which is the handling fee for your Dematerialised account.
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How many ways are there to close the demat account?
There are 2 main ways to close a demat account. Online is the first and easiest way is to close the demat account but if you do not want to close the demat account online, you can apply for the closure by visiting the branch.
Documents required for opening a Dematerialised account
Your permanent address evidence, PAN card, bank account information, and your signature are needed by DP when you open a dematerialised account. As evidence of your current address, you may present your voter identification card, passport, or Aadhaar card. You can provide a cancelled check, account statement, and a photocopy of the bank account book in exchange for bank account information.
Can an Indian who is a foreign resident stock trade in India?
Usually, a regular dematerialised account is opened for Indians, but if NRI want to trade in shares in India, they have two option one is repatriable dematerialised account and second one is non-repatriable dematerialised account. These dematerialised account for people who live abroad and desire to trade or invest in the Indian stock market.