Demat Account Number

Introduction

A Demat account is as important as a bank account; it allows access to market assets. Having a Demat account makes it easy to trade and invest in equities, derivatives, currency, commodities, mutual funds, and more. When we approach a Depository participant/brokerage firm to open a Demat account, we are provided with a 16-digit account number that is unique to every user. We can understand from this that the Demat account is the connection between the investor’s trading account through which he can invest in various exchanges like the NSE, BSE, and MCX

Advantages of a Demat account

The term ‘Demat’ stands for Dematerialized, i.e. the substitution of physical records or certificates with a paperless computerized system. Opening a Demat account is to make online trading in the stock market easier for investors.

A Demat account or Dematerialized account facilitates the holding of shares and securities in an electronic format. With a Demat account, an investor no longer needs to worry about the complex paperwork involved in investing. As the need to store physical records of investment documents is eliminated, the risk of losing valuable papers reduces to a great deal. In addition, a Demat account reduces the overall transaction expenses incurred by investors, besides enabling them to work from anywhere. Demat accounts also allow the immediate transfer of securities, in turn saving time and money for investors.

To list a few benefits of having a Demat account:

1. Easy access - You can find out the shares and other securities in your portfolio and find out how much they are worth.
2. Cost-effective – Demat account is cost-effective since the stamp duty that was imposed on share certificates was eliminated. And intermediaries don’t have to deal with truckloads of paper for share transfers.
3. Wide range of Investments - With a Demat Account, you can invest in a wide array of investments such as debentures, mutual funds, government bonds, and exchange-traded funds.
4. Dividends - The process of disbursing dividends has become so much easier through Demat Accounts. Companies don’t have to issue thousands of cheques. Recipients don’t have to bother about filling forms and depositing cheques at bank branches. These are credited automatically to the linked bank account.
5. Issuing Loans against Securities - If you have a Demat Account and a Savings Account at the same bank, it becomes much easier to get loans against securities if you are in need of funds. The equity that you hold can be taken as collateral against your loan which eases the burden of having a physical asset as collateral.

How to Open Demat Account?

To open an online Demat account:

1. Visit the website or branch of a SEBI registered depository partner of your choice and fill out an application form.
2. Submit all necessary documents like PAN card, address proof, and identity proof along with a photograph of yourself.
3. Due diligence will be conducted from the broker’s end.
4. The verification process takes a bit of time depending on the broker.
5. Once the verification is complete a statutory charge will have to be paid to the broker by the investor for account maintenance and other trading services.
6. Voila! The Demat account is now live for operations.
7. Transfer funds from your bank account to the Demat account and start trading in equity of your choice.
   

The important thing in all this one has to remember is the Demat Account Number, once the Demat account is open the brokerage firm which is affiliated to CDSL or NSDL will send a letter to the primary investor or 1st holder of the Demat account number, which is to be kept confidential in all purposes.

Dissection of a Demat account number

Now there are 2 formats of a Demat account number:

1. If the depository is CDSL, your Demat account number or (Beneficiary Owner) BO ID will be a 16-digit number.
2. But, If the depository is NSDL, your Demat account number will be a 16-digit alpha-numeric number with the beginning 2 characters being ‘IN’.

The point to note here is that a Demat number is a combination of DP ID and the customer ID (client ID). The DP ID is a unique code assigned to a particular DP or brokerage firm or any agency of the sort. The DP ID signifies that the DP/brokerage firm is a registered and authorized partner of the NSDL, CSDL, and SEBI.

If there is a problem with the account the DP will be able to solve the problem by asking the investor what his client ID is and helping out accordingly. On the other hand, the DP ID helps SEBI/NSDL/CDSL to identify if there is a problem with the broking agency and help identify the problem and solve it. The DP ID is essential in identifying any discrepancies in accounts related to a particular investor through that DP. Now the amalgam, which is the Demat ID being the connection between all the agencies creates a bridge.

Through the Demat ID, it is possible to identify an investor account and track it accordingly. This is beneficial for the investor as well as the agencies, it allows the investor to lodge complaints directly with the government agencies like SEBI or ND in case of wrongdoings on the part of the DP. These processes allow transparent operation of the account and clean taxation of the Demat account.

How will you know your Demat account number?

In the next part, the initial 8-digits of the Demat account number is the DP ID and the next 8-digits are the Customer ID. Now, what is a customer ID; the customer ID or client ID is the unique account holder identifier number that is provided to each and every investor by the DP. The client ID helps the DP to track and support the dealings of the individual investor.

What you need to remember is that the Demat account number and DP ID are not the same. The DP ID is a number allocated by the CDSL and NSDL to a depository participant such as a brokerage firm or other financial institution such as a bank.

It is also important to note that the format of a Demat account number varies in the case of both CDSL and NSDL. For CSDL, the Demat account number is a 16-digit numeric character. On the other hand, in the case of NSDL, the Demat account number starts with “IN” followed by a 14-digit numeric code. Let’s consider an example to understand this well, a Demat account number in CDSL may be 0987654321234567, and a Demat account number for NSDL can be IN78909876543210 if you forget your Demat account number you can also find demat account number from pan.

Wrapping Up

Since everything is done automatically and in electronic form, the scope for human error is low in the case of a Demat Account. Since no paper certificates are involved in the entire process, you don’t have to worry about loss or damage. A Demat account is just like a bank account. The primary difference between a bank account and a Demat account is that a Demat account is used to hold the shares and securities of an investor in an electronic format.

It's important to know how the financial world operates and in our country with its myriad of tax laws it is important to understand how it is implemented. Thus, a person should understand the constituents of the finance machinery down to its intricacies like what and how a Demat account is set and how the Demat account number is born. The better we understand the insides of the investment market the better will we be able to monetize it correctly and efficiently. To maximize profits on investment it is imperative to understand how and why a market reacts to any given situation and having a Demat account with a registered DP allows us to do just that.