Demat Account or dematerialized account is an account where securities are held in electronic form. In the Demat account, investors can hold all certificates of financial instruments such as Stocks, Mutual Funds, Bonds, etc. in one single account.
A Demat account makes the transactions between securities easier and speedier then physical forms or paper forms. It is less risky than paper form. It is a very necessary thing when you want to invest in the stock market.
A Demat account ensures immediate transfers of securities. Once the transaction is approved, the securities are automatically transferred to your account.
With the help of a dematerialized account, investors can easily convert their share certificates from physical form to electronic form to increase their accessibility. Investors who want to invest in securities use a Demat account to hold securities in electronic format.
A Depository is like a bank where securities are held in electronic form. Investors can use the services of Depository through Depository Participants (DP). There are two Depositories in India such as National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
A Depository Participant (DP), such as a bank, acts as an intermediary between the investor and the depository.
Investors need an internet password or a transaction password to access their Demat account. Transactions between securities in the Dematerialized account are automatically made once transactions are confirmed and completed.
Benefits of Demat account
- It reduces paperwork and makes transactions easy, secure and speedy.
- It also provides an investor loan facility where investors can pledge these securities as collateral to secure a loan from your bank.
- In Demat account, an account holder can easily convert their physical share certificate into electronic form and vice-versa investors can convert their electronic share certificate into physical forms by giving instructions to Depository participant as per investors requirement.
- With the help of Demat account whenever a company provides dividends, interest or refunds to its investors, all the Demat account holders get access to these benefits automatically.
- When investors have a Demat account they can access their transaction from anywhere by smartphone, computers and other handheld devices with the help of internet.
- To avoid any unexpected credit and debits account holders can freeze their account for some specific period as per their requirements. Even account holders can hold some specific units of securities in their accounts.
- It reduces the transaction costs because there is no stamp duty involved with the transfer of shares.
How to open a Demat account
- Firstly, you choose Depository Participants (DPs) with whom you want to open your Demat account. Banks, Angel broking and NJ E-Wealth, etc are some examples of DP.
- Afterward, fill an account opening form and attach a passport-sized photograph along with photocopies of the required documents stating proof of address and identity. Remember you must carry the original documents along for verification.
- The DP will give you a copy of the rules, regulations, conditions and necessary charges that you need to pay.
- A representative of the DP would contact you to verify your details mentioned by you in an account opening form.
- Once your application form is processed, you will get an account number or client id from the DP. These details are required for access to your Demat account online.
- When you get the Demat account number and become a Demat account holder you would be required to pay some mandatory fees such as an annual maintenance fee for maintenance of your account. The transaction fee for transactions in Securities from Demat account. In case your shares are in physical form DP may charge some additional fee for dematerialization of shares.
- Investors can open a Demat account without having any shareholdings. There is no requirement to maintain a minimum required balance.
Documents required to open a Demat account
- Aadhar card.
- Bank statement (last 3 months)
- Two passport size color photos
- Bank cross cheque
- ITR (Income Tax Return)
- Salary slip of the current month or Form 16.
- Net worth statements or copy of annual account statement certified by CA.
- Any documents that prove ownership of assets through self-declaration.