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How To Open Demat Account

July 26, 2022

Want to know how to open demat account? Well you have landed on the right article, make sure to read the article carefully to know how to open a demat account

We've all heard of bank savings accounts. It provides easy access to our money while also protecting them from theft and misappropriation. For investors, a Demat Account serves the same purpose. Nowadays, a Demat Account is essentially required to invest in stocks.

A Demat Account, also known as a Dematerialised Account, allows you to hold shares and assets in an electronic format. Shares are purchased and held in a Demat Account while online trading, making it easier for customers to trade.

All of an individual's interests in shares, government securities, exchange-traded funds, bonds, and mutual funds are held in a Demat Account. The Securities and Exchange Board of India (SEBI) implemented greater governance after demat enabled the digitalization of the Indian stock trading sector.

Furthermore, by storing stocks in electronic format, the Demat Account minimised the hazards of storing, theft, damage, and malpractices. The National Stock Exchange (NSE) originally introduced it in 1996.

The opening demat account process was initially manual, and it took several days for investors to get their accounts active. In today's world, it takes only a few minutes to open a demat account online, if you want to know how to open demat account online than make sure to read the article.

The end-to-end digital procedure has aided in the growth of demat, which has exploded in popularity in the last year.

How To Open Demat Account (2022 Updated)

DEMATERIALIZATION: WHAT DOES IT MEAN?

The process of changing physical share certificates into electronic form, which is much easier to maintain and available from anywhere in the globe, is known as dematerialisation.

To trade online, an investor must first open a Demat Account with a Depository Participant (DP). The goal of dematerialisation is to make it easier for investors to maintain and monitor their holdings by eliminating the need for them to hold physical share certificates.

Previously, the issue of share certificates was a time-consuming and inefficient procedure, which Demat has helped to improve by speeding up the process and keeping security certificates in digital format.

You can convert paper certificates to digital format once your Demat Account is active by sending all of your physical securities along with a Dematerialisation Request Form (DRF).

HOW DEMAT ACCOUNT WORKS IN INDIA?

To begin, it's crucial to remember that, in addition to a Demat Account, you'll also receive a linked trading account with a unique login ID and password. This is where you buy and sell stocks. The purchased shares are then held in a Demat Account.

To purchase or sell a specific share, you must first connect into your trading account, which is also linked to your bank account.

When you make a 'buy' or 'sell' order in your trading account for a certain stock, together with other details, your Depository Participant (DP) immediately sends it to the stock market.

If the order is to 'purchase,' the stock exchange identifies a seller who wants to sell the same number of shares and sends an order to clearance houses to debit the seller's Demat Account and credit it to the buyer's Demat Account. And that is how a single stock market trade is completed.

Both the buyer and the seller might have Demat Accounts with separate depositories' DPs.

Depositories in India, such as The National Securities Depository Ltd (NSDL) and Central Depository Services India Ltd (CDSL), offer free Demat Accounts.

These services are made possible by intermediaries, depository players, or stockbrokers such as Zerodha, Groww, Upstox, Angel One, and many others.

TYPES OF DEMAT ACCOUNTS

Let's look at the different types of Demat Accounts now that we know what demat is and how it operates in India.

There are three primary types:

1. Regular Demat Account: This account is for Indian citizens who live in India.

2. Repatriable Demat Account: For non-resident Indians (NRIs), this type of Demat Account allows money to be transferred abroad. This form of Demat Account, on the other hand, must be linked to an NRE bank account.

3. Non-Repatriable Demat Account:
This is also for NRIs, but fund transfers abroad are not feasible with this form of Demat Account. It must also be connected to an NRO bank account.

BENEFITS AND FEATURES OF A DEMAT ACCOUNT

  • Quick and convenient access: Through net banking, a Demat Account may provide quick and easy access to your investments and statements. Furthermore, you can access these statistics from any computer, smartphone, or other smart devices.

  • Rapid dematerialization of securities:  If an investor owns physical certificates, all he or she has to do is provide the Depository Participant (DP) instructions to convert them to electronic form. Similarly, if necessary, credentials in electronic form can be translated to physical form on demand.

  • Getting stock dividends and benefits: Demat Accounts have made the process of receiving dividends, interest, and refunds more faster and easier. Everything is automatically credited to the account. It's also quite handy to use an electronic clearing service to update investors' accounts with stock splits, bonus issues, rights, and public issues, among other things (ECS).

  • Effortless share transfers: It is now much easier to transfer shares whether purchasing or selling. Previously, the physical transfer of shares would take around a month. Costs have decreased as a result of the simpler approach. The transfer of securities kept in electronic form is exempt from stamp duty.

  • Demat Accounts have made it easier, quicker, and more convenient to obtain money while selling shares.

  • Loan against securities: If you have a Demat Account, you may take out a loan against the securities you have in your account.

  • Freezing a Demat Account: The holder of a Demat Account can freeze a certain kind or number of securities in the account. He or she can also opt to put the Demat Account on hold for a set amount of time. This will prevent money from being sent from any Debit or Credit Cards into the specified Demat Account.

  • Demat Accounts have played an important role in providing overseas investors with convenient access to the Indian stock market. And the increase in foreign money in the stock market has benefited the Indian economy as a whole.

HOW TO OPEN A DEMAT ACCOUNT?

How to create demat account Step-by-Step Procedure of Opening a Demat Account:

1st Step: Selection of a Depository Participant (DP)

The first and most important step in opening a Demat Account is to select a Depository Participant (DP). Banks, stockbrokers, and online investing platforms can help you find the finest DP services accessible in India.

When choosing a DP, make sure the service provider's services and functionalities match your requirements.

2nd Step: Fill out the Demat Account Opening Form and Submit

To open a Demat Account, go to your DP's website and fill out the online Demat Account opening form. You may open both a Trading and a Demat Account with several depository participants.

3rd Step: Compliance with KYC (Know Your Customer) requirements

It's time to fulfil the Know Your Customer (KYC) requirements once you've finished the Demat Account application. KYC papers such as proof of identification, proof of residence, bank account statement, and proof of income must be scanned.

It is preferable to have all of the relevant paperwork on hand before applying since this will speed up the procedure.

4th Step: Completion of the Verification Procedure

After giving your KYC information, you must complete an 'In-Person Verification' process (IPV). This is a critical activity to perform to verify the accuracy of your records.

Depending on your DP, you may be required to attend in person at either of your service provider's offices. Many DPs, on the other hand, now provide IPV services through the internet using a camera or a smartphone.

5th Step: Signing Copies of the Agreement

You'll be asked to sign a contract with your Depository Participant when you've been verified. All of the depository participant's and the investor's obligations and rights are outlined in this agreement.

6th Step: Getting BO ID No. after the completion of all of the above processes

Your DP will begin processing your Demat Account application when you sign the agreement. Once your application has been granted, you will be given a unique Beneficial Owner Identification Number (BO ID). With this BO ID, you may access your Demat Account.

DOCUMENTS REQUIRED FOR A DEMAT ACCOUNT

The paperwork required to start a Demat Account is low. This makes it easy for new candidates to follow the procedure from beginning to end without experiencing any difficulties. Only the documents listed below must be submitted:

1. Proof of Identity: A copy of PAN card with a photo

2. Proof of Address: You must provide a copy of one of the following papers as evidence of residency:
· Ration card
· Driver’s license
· Aadhaar card
· Voter’s identity card
· Passport
· Telephone bill
· Electricity bill
· Gas bill
· Any insurance copy
· Bank passbook or account statement (not older than 3 months from the date of receipt of documents)

3. Proof of Bank Account: A copy of your bank account passbook or bank statement is required as verification of bank account (not older than 3 months)


4. Income Proof: A copy of your most recent payslip or your tax return (mandatory for currency and derivatives segment)

DEMAT ACCOUNT CHARGES

Account Opening Fees, Safety (or Custodian) Fees, Annual Maintenance Charges (AMC), Transaction Fees, and Demat & Remat Fees are all examples of account charges.
 
With an increasing number of brokers and banks offering Demat services, as well as increased rivalry, most DPs are giving a variety of incentives in these payments these days.
 
For the first year, several DPs have waived the Demat Account Opening Fees as well as the Annual Maintenance Fees. Some DPs may provide additional benefits, such as lower transaction fees.

1. Account Opening Charges

Unlike in the past, today's Depository Participant (DP) costs for creating a Demat Account are either modest or non-existent. Brokerage companies and banks make it a point to provide it as a perk for signing up for two-in-one or three-in-one accounts.

Beginners and casual investors may easily trade or just invest in the stock market with such accounts. All of these accounts' transactions are frictionless and linked into a single platform.

Broking businesses, on the other hand, charge for any additional fees incurred, such as stamp duty, GST, or other SEBI-imposed statutory levies.

2. Custodian Fee (Safety Charges)

The majority of Depository Participants (DPs) pay Custodian Fees to the depository as one-time payments, and a few do not charge any custodian costs to the investor for keeping a Demat Account.

Custodian Fees are charged on a monthly basis by DPs. These fees are calculated on the basis of the number of securities stored in a Demat Account. For each ISIN, the prices usually vary between Rs 0.5 and Rs 1. (International Securities Identification Number).

For those firms who have previously paid the one-time costs to the depository, the DPs, i.e. your bank or broker, do not charge any custodian/custodial fees for the ISIN.

3. Annual Maintenance Charges

A Demat Account holder will be required to pay an Annual Maintenance Charge (AMC) to the Depository Participant (DP) for the services delivered, similar to other costs, some of which are waived.

These fees, also known as folio maintenance fees, must be paid in advance and normally vary from Rs 300 to 900 every year. Some DPs may impose quarterly fees, while others may charge a lifetime cost of Rs. 2000 or more.

However, because a lot of DPs are vying for consumers, several of them have waived AMC fees for the first year and only bill from the second year forward. AMC rates for DPs under banks are usually varied.

4. Demat Account Transaction Charges

The transactions that take place in your Demat Account are all done with the intention of creating a profit. Your DP charges a small transaction fee in exchange for assisting you in earning money.

This per transaction charge must be paid each time financial securities are received or sent from your Demat Account. The majority of DPs, however, charge it on a monthly basis. With DPs, transaction costs vary based on the kind of transaction, such as buying and selling.

When you acquire shares, your Demat Account is usually credited. When you sell shares, your Demat Account is debited in the same way.

Some DPs only charge when the securities are debited, whereas others charge when the securities are bought and sold. Some DPs charge a fixed payment for the month or a fee dependent on the number of transactions you've made.

Some companies charge around Rs 1.5 for each share traded.

DIFFERENTIATION: DEMAT ACCOUNT & TRADING ACCOUNT

Given below are some points that bring out the major differences between a trading and a Demat Account:

1.  Functional Differences

A dematerialized account's primary job is to store securities, but it also accomplishes re-materialization, which is the transfer of shares from electronic to physical form.

The task of selling and purchasing stocks is the duty of the trading member, who acts on the client's orders or independently. Only a Trading Account is necessary if a trader desires to trade in currency; however, both accounts are required if a trader wishes to trade in equities.

2.  Differences in the Nature of the Accounts

A dematerialized account, often known as a stock account, is an electronic account that contains shares, bonds, government securities, and mutual funds. A trading account is used to trade the financial instruments that are held in a stock account on the stock market.

Here's an example from the real world: Consider the following scenario: You have a thousand rupees in your wallet (i.e., a trading account) and you stroll into a department shop (i.e. the share market).

You make multiple purchases and settle on a price. You then pay the outstanding balance in your wallet. Your wallet is the Trading Account in this scenario since it was the source of funds for the transaction. Because the assets you acquired are now in your shopping bag, it is the Demat Account.

3.  Differences per the Compliance

You must contact a SEBI licenced broker and a Depository Participant (broker) registered with the NSDL or CDSL to set up a demat or trading account. Such permissions are not necessary in the event of a trading account.

However, a person's ability to have several demat or trading accounts is unrestricted - albeit having multiple accounts is pointless. In fact, since the accounts are tied to PAN cards, you cannot have more than one trading account with a brokerage.

I hope you liked our article on how to open demat account, and it must have solved your queries such as, how demat account opening happens, how to make demat account, how to create a demat account or demat account opening procedure

if you have any comments or suggestions do share them in the comments below.

Ankur Aggarwal

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About the Author

Hi all, I am Ankur Aggarwal – Digital Marketer, Entrepreneur, Traveller, Blogger, and Foodie. Have been blogging since 2010. In 2016 I scored 99.2 percentile in XAT Exam for MBA, left that to pursue my Online business dreams.
The purpose of ankuraggarwal.in is to pass on 100% accurate, genuine and FREE information on Personal Finance, Entrepreneurship, Investing, Career, and Learning Digital Marketing Online. Know more about me here: About Ankur Aggarwal

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