Demat account means a way to hold securities in an electronic format. Similar to a bank account where you can transfer and receive money without using paper money, in a demat account, you can electronically buy and sell shares on the stock market without utilizing physical share certificates.
A demat account also serves as a safe deposit for your investment securities and holds various certificates of your financial instruments such as mutual funds, shares, bonds, government securities, and exchange-traded funds (ETFs) in a dematerialized form.
Now that India has embraced Dematerialization, it is essential for an investor to have a demat account before they start trading in Indian markets.
With this in mind, let’s take a look at some of the frequently asked questions (FAQs) about a demat account that every investor must know.
What Is A Depository?
A Depository is similar to a bank where investment securities are stored in a dematerialized, i.e., electronic format. There are two depositories in India namely National Securities Depositories Limited (NSDL) and Central Depository Services Limited (CDSL).
What Is A Depository Participant And How Can It Help Me With A Demat Account?
An investor can open a demat account with a depository participant (DP), which is an agent of the depository. According to the Securities and Exchange Board of India (SEBI) guidelines, banks, financial institutions, stockbrokers, custodians, etc., can become DP with a depository.
The services offered by the DP are listed below:
- Demat account opening and maintenance.
- Dematerialization of mutual funds and securities.
- Rematerialisation of mutual funds and securities.
- Transfer of mutual funds and securities.
- Pledging, unpledging or invocation of securities.
- Freezing or un-freezing an account.
- Account modification.
- Account closure.
How Can I Open A Demat Account?
There are certain steps involved in order to open a demat account.
- Select a DP you wish to open your demat account with.
- Make copies of required documents such as address proof, PAN card, income tax returns, bank statement of the last three months, passport size photographs, and a crossed cheque.
- Fill up the account opening form and submit the copies of required documents as proof of address and proof of identity as per SEBI guidelines. Along with the form, you also need to present your original PAN card at the time of opening the demat account.
- Following the form submission, the DP will open your demat account in their system, and generate a unique account number, also known as BOID (Beneficial Owner Identification number). You can use the BOID for all your future transactions with the broker.
What Are The Essential Features Of A Demat Account?
By holding your securities in a demat account, you can achieve the following:
- A demat account can eliminate forgery as manipulating paper is easy but shares can’t be forged electronically.
- By using a demat account, you will ensure that all your investment securities are collected safely in one place meaning no loss or misplacement issue.
- With a demat account, your securities are permanent and recorded digitally, thereby omitting the chances of paper decay or ink erosion.
- All the transactions made are hassle-free and less cumbersome since you don’t need to carry physical certificates every time you trade to the buyer of the seller.
How Many Demat Accounts Can I Have?
An investor can open more than one demat account. Moreover, one demat account can be utilized to track multiple trading accounts.
What Are The Brokerage Charges And The Annual Maintenance Fee Involved In A Demat Account?
Brokerage charge is the amount that you have to pay when you buy or sell shares. The charges could either be levied in the form of a percentage or a fixed amount. For instance, if the brokerage fee is 0.5%, then you will have to pay 50 paise every time you purchase shares worth INR 100. The charges are different for trading in financial markets and mutual funds.
The annual maintenance fee can vary between INR 500 and INR 2,000, depending upon the agents and the services they provide.
Additional charges such as demand charges (the fee to dematerialize stocks in paper or certificate format), advisory fee, and ad-hoc account statement fee can also be levied.
Can A Person Operate My Demat Account On My Behalf?
You can authorize any person to operate your demat account by executing a power of attorney (POA). However, it is necessary to submit a notarized copy of the POA to your DP.
Since the inception of demat account, trading has become an easy avenue for investors to earn profits. Moreover, you can make transactions at the click of a button, at your own convenience!
Thus, opening a demat account is worth it and would be valuable in numerous ways for your trading and investment pursuits.