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How to Open Demat Account – Process, Charges & Advantages

How to open a demat account?

Having a demat account is one of the pre-requisites of trading in the stock market. Prior to 1997, securities were held in the physical form i.e. in the form of share certificates. On buying shares, investors were given the contract note along with the share certificates and the transfer deed by the broker. Investors would then send the share certificates and transfer form to the company’s registrars. On receiving and successfully verifying the certificates and transfer form, the registrar would include investor’s name in the register of shareholders and issue them fresh share certificates. However, this process often involved issues such as loss or theft of share certificate, difficulty in storing and maintaining share certificate, bad deliveries, signature mismatch, etc.

With the introduction of dematerialisation, these securities are now held in the demat account. A demat account not only saves from the above-mentioned hassles but also makes the entire process of trading and investing very quick and easy.

It is important to open demat account if you are willing to trade or invest in the stock market. In fact, according to a recent report of Economic Times, approximately 3.76 million demat accounts were opened only in the year 2017-18. If you too are willing to gain from the potential of the stock market, you can do so by opening a demat account online.

This article will walk you through the entire process of how to open demat account. But before we understand the demat account opening procedure, let us first understand the meaning of the demat account.

What is a demat account?

The word demat is an abbreviation of word dematerialisation. A demat account is just like your bank account. In fact, it operates also just like the bank account. Just like you hold cash balance in your bank account, you hold shares and other securities that you own in your demat account. These are held in dematerialised electronic form. These days all the share purchases and sales are done only through a demat account in non-physical form.

Now that you know what is a demat account, let us learn the free demat account opening procedure.

How to open demat account online?

Step 1
In order to open demat account, you have to reach a depository participant with whom you wish to open an account. The depository participant is an agent of the depository (i.e. CDSL - Central Depository Services Limited or NSDL - National Securities Depository Limited). The depository participant could be a broker, bank or other financial institution offering the service. You may find the list of depository participants on the official website of the depositories.
Even though you open demat account with the depository participant, the custody of your actual shares will be held with the depositories (CDSL or NSDL) which ensures enhanced safety and security of your holding.

Step 2
Once you have finalised your depository participant, you need to fill up an account opening form with them. Along with the form, you also need to submit the photocopies of your KYC (Know your Client) documents for proof of identity (which includes PAN card, voter's ID, driving license, passport, IT returns, and other government issued ID cards) and proof of address (which includes telephone bill, electricity bill, voter’s ID, bank passbook or bank statement, etc.). In addition to the above-mentioned documents required for a demat account, you will be required to furnish the copies of your passport-sized photographs and your PAN card. Do not forget to keep the original documents for verification purpose.

Step 3
At this stage, you will be given a copy of the Depository Participant-Investor agreement which specifies the rules, regulations, rights and obligations regarding the agreement. It will also contain the schedule of charges that you are supposed to incur in the future. It is advisable to carefully read the agreement and understand the terms of the agreement before signing it.

Step 4
In the fourth step, an in-person verification would be carried out by the staff of the depository participant in order to ascertain the truthfulness of the details provided by you in the account opening form. These days, a lot of brokers also encourage in-person verification over the webcam which makes the process much easier.

Step 5
Once all the documents are verified, the depository participant will open an account and give you the account number or client ID, also known as a beneficial owner identification number (BO ID). This unique number will be used for all future transactions, IPO applications, etc.

With the above-mentioned steps, you will be able to easily open demat account online. Once your demat account is operational, all the share purchases will be credited to this account and all the shares sold will be debited from this account. However, you must know that a demat account can only hold shares and securities in custody and therefore you will need a trading account in order to transact i.e. buy and sell shares and securities.

Few things to know about the demat account

• You can have multiple demat accounts if you wish to.
• You can open a demat account with zero balance of shares as it does not require you to maintain any minimum balance.
• It is not mandatory to open a depository participant account with your stock broker. You may choose to open an account with any depository participant as per your convenience.
• It is advised that you update your bank account details and any change in your postal address to the depository participant as you will be sent refunds, dividends, interest, etc. in your bank account and all the correspondences will be sent to the postal address mentioned in your demat account.

Charges for opening demat account

Most of the depository participants do not charge an account opening fee for a demat account. However, there are other demat account charges which an investor has to bear. These include annual maintenance fee for maintenance of the account, transaction fees for selling shares from the account on a monthly basis, fee for dematerialisation and rematerialisation of securities, etc.

The demat account charges vary from one depository participant to others. Some may charge a flat fee on every transaction while others may charge a fee based on the type of transaction (i.e. buying or selling).

You may find the demat account charges of various depository participants on the websites of the depositories. All you have to do is compare and find out the depository participant that best suits your needs.

Now that you are aware of the entire process of how to open demat account, you must also be aware of the advantages and features of a demat account.

Advantages of opening a demat account

• The biggest advantage of opening a demat account is that it saves from the hassles of theft of certificates, loss of certificates in transit, issuing duplicate certificates, etc. Unlike paper certificates, dematerialised shares and securities do not carry any storage risk and cannot be stolen, forged or damaged.
• In case of change of address, you are no longer required to intimate and write separately to the registrar for each company whose shares you own. With the demat account, you just have to intimate your depository participant once.
• Unlike trading with physical certificates, the demat account does not have a requirement of minimum lot size which encourages even small investors to participate in the equity markets.
• It involves minimum paperwork as shares and securities are held in electronic form.
• Trading in demat account saves time and involves quick settlement.
• It is a secure and easy way of transacting in the stock market.
• You can easily keep a track of all your holdings in your demat account.

With numerous advantages of a demat account, more and more people are opening their demat account and making their stock trading a seamless experience. You too can open a demat account in a few simple steps with a renowned broker like IndiaNivesh. So, open your demat account now and enjoy a hassle-free trading experience.

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.