Supervising finances like equity or debt can be an annoyance, given the duties that need to be performed every day to handle them. The Depository Act of 1996 made the act of managing securities less painless and complicated for people. In just a few clicks, a demat account can be opened.
Rather than receiving physical replicas of shares or other securities, a demat account allows you to leverage the advantages of an online trading platform. With the help of a demat account, you are holding your securities in a standardized electronic system.
This provision was introduced by the Indian government to keep up with the developing times. It was done with a motive to progress the Indian investment system like the other developed countries which are offering electronic trading platforms to decrease forgery, enhance market efficiency, and facilitate ease in trading.
According to the Securities Exchange Board of India (SEBI), open demat accounts are compulsory. In 2018, approximately 3.76 million new Demat accounts were opened. This boost indicated the increasing curiosity of the investors to invest directly in the equity market.
What Is A Demat Account?
A demat account, standing for “dematerialized” account, means all the shares, stocks, bonds, and other financial securities which are held in electronic form rather than a ‘material’ or hard copy form.
A demat account includes the following varieties of securities – shares, stocks, bonds, e-gold, IPOs, government securities, etc.
A demat account works like a bank account. It shows all the credits, debits, balances, transaction history, etc. It is a platform to hold your finances electronically. There is no lower limitation to the worth of holdings you need to have to hold the account. It does not matter if the balance in your account is zero after you open it.
Benefits Of Having A Demat Account
There is not only one advantage of holding a demat account. This technological development has benefitted the holder of the demat account –
- Traders are free to transact at a time they are comfortable in. This makes it convenient and time-saving.
- There is not much paperwork to do to register transactions.
- There is no risk of theft, delays, or fraud of physical copies of share certificates, bonds, etc. The securities are stored in electronic form which makes them safer and easily accessible.
- There is a single platform to hold both equities as well as debt instruments.
- Credits are done automatically in case of bonuses, splits, mergers, consolidations, etc.
- A demat account eliminates the need for numerous communications. Every stakeholder is made aware of the transaction via electronic alerts dismissing the necessity to reach the company, trader, or investor.
- A single share can be bought or sold, unlike the previous times when they were bought or sold only in lots.
- Discarding stamp duty costs, which were otherwise associated with physical documents of securities, has led to a substantial decrease in the cost of trading.
- Address modifications are updated with every corporation financed by the investor through the Depository Participant.
What Are The Key Elements Of A Demat Account?
There are four primary components of a demat account –
A depository is an organization, bank, or institution that maintains securities and assists in trading the securities. There are two depositories which are working in India. These are Central Depository of Securities LImited and National Depository of Securities Limited. Both of these institutions electronically retain pre-verified shares.
- Depository Participant
Any financial institution enlisted under SEBI can serve as a representative of the Depository and conduct transactions for the investor. All the depository services have to be channeled through the DP. A DP can be anything ranging from a financial institution to a scheduled commercial bank to a foreign bank operating in India (RBI approved) or a stockbroker. SEBI allocates every DP a unique code.
An investor is an individual owning securities. It is the person with the demat account.
- Unique ID
Every demat account has a special 16-digit identification number. This number ensures the smooth and evident processing of securities.
How To Open a Demat Account?
Demat account opening is not a complicated task. The following steps can be followed to open demat account –
- Select a Depository Participant (DP) with whom you want to open the account. Choosing a DP depends on the brokerage charges, annual charges, and leverage provided.
- Submit an account opening form and KYC form along with PAN Card, Residence Proof, ID Proof, and Passport-sized photograph. A canceled cheque will be required to access the dividend bank details.
- You will need to sign a document agreeing to all the rules, regulations, and rights associated with holding a Demat Account. This agreement needs to be submitted to the DP, where it is signed by an authorized person.
- After the account is opened, you will receive a unique Client ID from the DP. This ID along with other details will allow you to access your Demat Account online.
How To Open a Demat Account Online?
Rather than visiting the DP and offices physically, you can open your demat account from the comfort of your home or office with just a few clicks.
- Visit the website of your chosen DP.
- Click on the ‘open demat account‘ tab and submit details like name, email ID, mobile number, one-time password that you will receive on your phone, city, etc.
- You will receive information from your DP. DP will try to get in contact with you to complete the required details and formalities. After fulfilling all the necessary details, your demat account will be working.
An investor can have multiple demat accounts, with the same or different DPs. To hold more than one demat account, the holder must be able to provide the required KYC details for all applications.
It may look like opening or having a demat account is a challenging task but demat accounts were introduced to make the process of trading easier. Only a few steps need to be followed with care to open demat account.