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What is Demat Account, opening process, benefits,FAQ etc

Updated on: 23 Nov, 2023 01:22 AM

As users, we often get confused between different types of account like a savings account, current account, demat account, capital account, personal account and many more. Due to a variety of accounts, it is difficult to be a aware user and citizen. To help you with this problem, we have covered demat account briefly in this blog.

What is a Demat account?

A demat account which is also known as Dematerialised account is used to hold securities and shares in an electronic form. It is especially useful in online trading of shares as through this account you can buy/sell/retain physical shares converted into an electronic form. All the investments in shares, government securities, bonds, and mutual funds are saved in this account.

How to open a Demat account?

You can avail the demat account services through portals like NSDL and CDSL. Demat account services are extended through these portals with the help of intermediaries like

  • Stock brokers and
  • Depository participants like banks

The amount charged on the demat accounts is based on factors like the volume of the transactions from your account, type of demat account subscribed and the rules and regulations laid down by the intermediaries like stock-broker and the depository.

What does Dematerialisation means in a demat account?

The process of transforming physical certificates into electronic certificates is called Dematerialisation. Conversion into electronic form facilitates accessibility round the clock and are easy to store. The major objective of the dematerialisation process is to abolish the need to hold physical share certificates and facilitate online supervising and tracking.

Types of Demat Account

There are two types of demat account:

  • Repatriable account
    These are those types of funds which can be transferred abroad. These funds are deposited in Non-Resident External Account (NRE a/c).
  • Non-Repatriable account
    These types of funds cannot be transferred abroad. These funds are deposited in an Non-Resident Ordinary Account (NRO a/c).

Why is Demat account necessary?

Demat account is necessary due to the following reasons:

  • Provides a safe and secure way of investing in shares and holding them.
  • Due to shares/certificates in electronic form, the risk of damage and theft is negligible.
  • You can transfer your securities immediately with the demat account.
  • Once your investments are approved, your shares and securities will automatically be transferred in your demat account without any hassle.
  • All the information related to your transaction and investments is available in your account. You just need to log in to your account to access the information.
  • You can access your demat account and trade shares and securities from anywhere.
  • Due to the online transaction, the transaction cost has reduced to a great extent. This is because of the elimination of stamp duties levied while transferring the share.

How does a demat account operate?

If you are familiar with physical trading, then electronic trading would be a cakewalk for you as both are similar in nature. To familiarise yourself with the online trading process, read the steps mentioned below:

  • Go to your online trading account and start by placing an order. However, for this process, it is important that your demat account and trading account are linked.
  • Once you are through your order, your order will be processed by the exchange.
  • Your demat account will then tally the market prices of the shares you are looking to invest in. Before the last stage, your demat account checks for the availability of the shares.
  • Once the process is complete, your shares will be reflected in your demat account.
  • If you wish to sell your shares, you need to provide a delivery instruction note containing the details of the stock you wish to sell.
  • After selling your shares, these will be debited from your account and the money earned from it will be credited to your trading account.

Documents required to open a demat account

You need documents which satisfy these three categories:

  • Proof of Income: any official document stating your income/earnings. You could submit your ITR (Income Tax Return) acknowledgement slip, a copy of annual statements of account certified by a CA (Chartered Accountant), your salary slips, latest bank account statements, or other approved documents.
  • Proof of Identity: official documents like PAN, Aadhaar, Voter ID, Driving License, Ration Card, Passport, or any other authorised document containing your photograph.
  • Proof of Address: documents mentioned under Proof of Identity along with utility bills, bank passbook or any other document issued by a government institution containing your address.

How to open a demat account?

Follow the steps mentioned below to convert your physical shares into an electronic format.

  • To begin with, you need to choose a Depository Participant (DP) with whom you would like to open a demat account. You can visit the official websites of NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited) for the list of available depository participants.
  • Once you are done selecting the DP, fill the demat account opening form. Submit the duly filled form after attaching the required documents and affixing a passport size photograph. Additionally, it is a possibility that you might even need your PAN card so make sure to carry it. It is advisable that you have your original documents with you during account opening for verification purposes.
  • After filing the form, the DP will provide you with certain documents like a copy of the rules and regulations, and a copy of the agreement. You need to review these documents, accept the terms and conditions and submit these documents. You also are asked to pay a minimal amount for account opening.
  • For the in-person verification, you might receive a call from a DP representative to verify the details you furnished in the account opening form.
  • Once the entire process is done, client ID/account number from the Depository Participant. You will need this account number/member ID while accessing your demat account online.
  • You will be liable to pay an annual maintenance fee for your demat account. If you are using your demat account for trading shares, you also are liable to pay a transaction fee. If shares bought by you are in material/physical form, then your demat account will charge you extra money for the dematerialisation of your shares, i.e, converting them into an electronic form.
  • Another important point to note is that it is not mandatory to maintain a minimum amount in your demat account. You can even open your demat account without having any shareholdings in your possession.

Frequently Asked Questions

Q- Which are the best banks to open demat account with?

Some of the banks which provides the best demat account related facilities are ICICI Bank, Kotak Bank, HDFC Bank, SBI Bank, and some other banks.

Q- Are there any charges levied while opening the demat account?

No, there are no charges for opening a demat account. Although you are liable to pay the transaction/operation charges fixed by the intermediaries. These transaction/operation charges are inclusive of Annual Maintenance Charges and it is mandatory that you are paying all the charges as they are levied, failure to do so will result in the freezing of the account.

Q- How many days are required to open a demat account?

It usually takes 7 to 14 days to open a demat account. If the processing time is longer, then it might also take up to 15 – 20 days.

Q- What happens next once I have submitted my demat application?

Once you have submitted your Demat application, necessary verification of the information furnished in the application will be carried out by the Depository Participant (DP). Once you are through the verification process, you will receive welcome kit. Your welcome kit will contain your demat account login credentials (user ID and password). You can then begin trading by logging in your demat account by using the credentials provided in the welcome kit.

Q- What do you mean by a joint demat account?

A demat account can be held by a single owner as well as can be held jointly. A maximum of three account holders can hold a demat account under joint ownership. These three account holders necessarily have to include the main holder and two other holders and right to the shares held in the demat account are distributed evenly amongst all the holders.

Q- How is a trading account different from a demat account?

Trading account is used to facilitate the process of selling and purchasing the shares while demat account is responsible for holding shares and securities. It is mandatory to link your trading account with your demat account for smooth selling/purchasing of the shares and securities and also to avoid the verification process at every stage.

Q- How many demat accounts am I entitled to?

You can open multiple demat accounts but you are only entitled to one trading account which can be opened with any stock broker. If you are an active trader, you might want to possess more than one demat account for using various trading strategies.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.