Remember the times when there was no online shopping, no online conversations, and no digital payments? It seems like it was a long time ago. To keep up with the pace of technological advancements, the share market also took a turn. And this was when Demat Account was introduced.
But what is a demat account and is it needed to start investment in the share market? Let us understand everything in detail in this article.
Meaning of Demat Account
Understanding the Demat account full form it is a dematerialized account that works as a locker for your shares. An account where all your shares and securities are held in a digital format is known as a Demat account. It ensures that your shares are safe and there are minimum chances of fraud.
Before demat account started in India, the shares were bought and sold in physical format. Not just this, you had to keep the track of your shares and hold them in the same form. This possessed a lot of problems for the investors in the case of loss of shares or any other theft.
This problem was solved in 1996 when demat account was introduced and all the investors had to convert all their shares in electronic form.
So now, whenever you place a buy order, your shares are credited in a dematerialized, electronic form in your Demat account. Similarly, when you place a sell order, the shares are debited from your account.
But since we know that it decreases the chance of any fraudulent activity, who is responsible for the safety?
These dematerialized accounts in India are maintained by two depositories: NSDL and CDSL. But where to open a Demat account? So, an investor needs to reach out to a Depository Participant like Choice India, when they want to open their Demat account and begin their stock market journey.
Depository Participants or stockbrokers serve as an intermediate link between the depositories and the investors.
So, with this advancement, there is now a lesser threat for your shares to get lost or stolen. You get a better command of your portfolio.
Let us now have a look at the different types of Demat account so that you know exactly which one is perfect for you.
If you want to earn money in the stock market, then you need to have an activated demat account. There are various types of demat accounts in India which helps a wide variety of individuals to enter the stock market and earn good profits from it.
Let us now have a look at its types.
- Regular Demat Account- Needless to say, it is what its name defines. It a demat account that a citizen of India can have. So who can open a demat account? Any resident of India who has all the valid documents.
A regular demat account is opened by the various depository participants in the stock market, which in turn is regulated and managed by the two depositories.
And the best part about owning it is that you don’t have to wait for days or weeks to buy or sell your shares. It happens within minutes and therefore you get the chance to earn profits as well.
You can open a regular demat account with the stockbroker of your choice and also switch and transfer the shares depending on your requirements.
- Repatriable Demat Account- If you are an NRI and have a will to invest in the Indian stock market, then you have an option for that as well. If an NRI wants to open a repatriable demat account, then he needs to link his NRE bank account to it.
This makes sure that you can easily transfer the funds to other foreign countries as well. There are certain rules set by the Foreign Exchange Management Act (FEMA) that anybody with a repatriable demat account has to follow.
- Non-Repatriable Demat Account- There is another facility for the NRI clients looking to open a demat account in India. The only difference between a repatriable and a non-repatriable account is that, in the latter, you cannot transfer funds abroad.
You need to link an NRO account for a non-repatriable account. Once you have done that, you can easily trade in the Indian stock market.
Demat Account Features
Now that we know that there are certain types of demat accounts and it is a necessity when you want to invest in the share market. There are different features associated with a demat account and now let us have a look at that.
- Easily buy and sell- With the introduction of demat account, you can easily buy and sell shares sitting at the comfort of your home. Earlier this used to take from a few days to even weeks because of the physical form of shares.
Further, it has made it very convenient for investors to transfer their shares. They can take the help of Delivery Instruction Slip (DIS) and very smoothly carry on this process.
So all the work that used to happen in physically before now happens electronically. The entire journey of a user in the stock market has now become easier.
- Loan Against your Securities- Another service that the Demat account offers is that you can pledge your securities. It works as collateral against your loan and you can effectively trade even if you are running short on capital.
- Receive Bonus- Whenever you invest in a share of a company, you get the part ownership that also makes you eligible to receive any bonus shares that the company provides.
With the introduction of the demat account, it is now easier to receive the stock split shares as they directly reflect on your demat account.
- Easy to access- Gone are the days when you had to rely on different stockbrokers to keep an eye on your investments. Now you can access your holdings, your portfolio, and the status of your account from anywhere and at your own ease.
These features certainly make Demat account a credible product in the stock market. But can you open a demat account?
Let us answer this question in the next segment.
SEBI has laid out certain guidelines as to who is eligible to open a demat account in India. Anyone who falls under the following criteria can open a demat account. Let us quickly have a look at the same.
- Anyone who is a resident of India.
- The member of any HUF family
- NRIs can also open an NRI Demat account in India.
- Even if you are a minor (below the age of 18), you can open a demat account for minors. There is no age limit for demat account.
- A company that is taxed under the taxation policy of India is also eligible to open a demat account.
Now that we have talked about the criteria of opening a demat account, let us have a look at how you can complete the entire process.
There are a lot of stockbrokers available in India ranging from a wide variety of full-service, discount, and even hybrid brokers. Now you can choose to open your demat account with either one of them depending on the services that you are looking for and the one most suitable for you.
These days as everything is getting digitalized, the stockbroking world has also completely transformed itself. Whereas a lot of people prefer to open their demat accounts online, there are still a lot of people who go in for the offline method as well.
If you want to open a demat account offline, you can simply follow the given steps,
- You can visit the nearest branch of your stockbroker. (Choice also gives you the facility to open a demat account online)
- Fill in all the details in the demat account opening form. (You can download this form from the official website of the broker)
- Submit the form with the required KYC documents.
- On successful verification of your documents, you will get an activated demat account.
The offline process can be a tedious process for some of the clients. To ensure that the clients have a seamless journey, you can also open a demat account online.
With Choice India you can open a demat account online as well. It is an easy and seamless process. If you are looking to open your demat account online, follow the given steps.
- Open the official website of Choice.
- Click on the ‘open demat account’ option.
- Now enter your details like your name, phone number, and the name of your city.
- In the next step, enter your PAN card details and your date of birth.
- Enter your mobile number and e-mail. You will now receive the OTPs. After the successful verification of the OTPs, you will be redirected to a new window.
- In this window, enter the basic details, and then you have to choose an AMC plan. Choice India lets you choose your own demat account AMC charges.
- Upload all the necessary documents.
- You will now be directed to the NSDL website for e-sign.
- Enter your Aadhar card number and you will receive an OTP.
- On the successful verification, your demat account will be activated.
If we talk about the demat account activation time, Choice India takes up to 4 hours after the successful verification of documents. If you face any troubles in opening a demat account, the Choice India team will contact you and help you in the entire process.
You need certain documents when you are opening your demat account. If you have the complete list of these documents handy, it becomes easier for you to complete the process.
Let us have a look at the documents that you require to open a demat account.
- Proof of identity (PAN card, aadhar card, any other Identity proof issued by the government of India)
- Address Proof (Aadhar card, utility bills, rent agreement, registry of house, etc)
- Income Proof (ITR statements, bank statement of the last 6 months, salary slip, etc)
- Bank details
Note- The income proofs are especially required when you want to activate certain segments like the derivatives segment.
These are the general documents and you don’t have to undergo much hassle looking for these. There are certain charges that are associated with the demat account. Since we have talked about the Demat account opening process, let us now move towards the dreamt account charges.
Demat Account Charges
Whenever you avail any services, there is a possibility that you will have to pay certain charges. Similar is the case when you open a demat account with a stockbroker. You need to pay some basic charges so that you can enjoy the services.
The two demat account charges that are levied on the clients are,
- Demat account opening charges
- Annual Maintenance Charges (AMC)
Let us look at these charges in detail.
Demat Account Opening Charges
When you open a demat account, you will have to pay some demat account opening charges. Earlier these charges used to be very high, but a lot of stockbrokers are now moving into the free demat account zone.
The opening charges of account can range anywhere from ₹0-₹500. But if you open a demat account with Choice India, you don’t have to pay any opening charges.
You can avail the services of the broker and start trading at absolutely no cost. Apart from the initial opening charges, there are some other charges that you have to pay to your stockbrokers.
There are certain annual charges that you have to pay to your stockbrokers. These are generally referred to as the account maintenance charges of the AMC charges.
Some brokers charge it annually, while some of them have kept it on a monthly or quarterly basis.
The AMC charges are levied by your stockbroker for the maintenance of your account. These charges can vary from one stockbroker to another. Now, these charges can range anywhere from ₹200 to as high as ₹3000 as well.
A lot of stockbrokers now allow their clients to enjoy the services free of cost for the first year. Choice India also does not charge any AMC in the first year. From the second year onwards, you get a chance to pick the plan according to your requirements.
If you open an account with Choice India, you can select from the given AMC plans.
- ₹200+ GST- This is the regular plan in which you have to pay ₹200+ GST from the second year onwards.
- ₹1500+GST- If you choose this plan, you don’t have to pay AMC charges for a lifetime.
- ₹3000+GST- This is the refundable AMC plan, in which you will get the entire amount back when you decide to close your account.
These are some of the charges that are levied when you open a demat account.
Benefits of a Demat Account
Since the introduction of dematerialization, there have been a lot of changes in the stock market. Wondering is the demat account safe, then let's tell you that the introduction of materialized accounts has reduced the scams in the stock market, and rightly it has managed to do so.
But apart from this, there are various other benefits of demat account as well.
- No hassle of storing/holding shares- In earlier times, all the shares were kept in a physical form. There was a lot of paper involved and this often lead people to misplace the shares. This also evoked a lot of fraudulent activities and misuse of the shares. With the introduction of demat account, all the hassle of physical shares has ended. The shares are stored in a digital format, making it easier for the users to manage and keep a track of them.
- Easy Transfer of shares- It also lets a client store the shares easily. Not only does the storing of shares become easy but there is a smooth transfer of shares as well. Earlier, users had to transfer the shares manually and in a physical format, this used to take a lot of time. But with the advent of technology and the introduction of demat account, this has become quite simple.
- Receive the Bonus easily- All the bonuses and dividends that the company provides to its shareholders are easily credited to your account. Not only this but if the company splits the stocks, then the updated number is instantly shown in your demat account.
- Easy to track and maintain- It lets the user buy/sell shares from anywhere. It has also made it easier for the users to keep a track of their holdings and proper control over their portfolio.
- Storage for different investments- If you think that the demat account is capable of storing just your equity shares, then you might be wrong. You can hold various types of investments including your mutual funds, ETFs, bonds, etc in dematerialized form.
These are the various benefits of a demat account that have made it easier for stock market enthusiasts to have a smooth and beneficial trading journey.
Demat Account Disadvantages
Just like it is not always sunny, along with the advantages, there are some disadvantages too. Let us have a close look at these.
- Charges- There are a lot of different charges that you have to give to your stockbrokers when you open a demat account. These can be unnecessary costs and some brokers might even charge you a lot.
- Constant watch- However, buying and selling have become easier and it has also become convenient for the users to keep a track of their portfolio. It also has a downside. A lot of people now buy and sell in the stock market because it has now become easier to trade. This creates a negative impact on their long-term financial goals and also their wealth creation.
- Not everyone understands technology- It is not possible for every individual to be technologically sound. While a lot might enjoy the convenience of a demat account, there are still some people who have stopped looking at the trading world because of not being well versed with technology.
So, no doubt that it is a bane for the majority of population, but there are still some areas that lack that proficiency.
All the unethical and fraudulent activities minimized when the dematerialized accounts was introduced. The management became better and the users now have the entire buying and selling on their fingertips. You can easily start your stock market journey by simply opening your demat account. As discussed above, there is no age limit and you can even start before your 18th birthday.
The stock market is not only an interesting but also a growing space. If you are looking to a part of this as well, open your account today!
Demat Account FAQs
You are open multiple accounts with the stockbroker. Although, you have to make sure that you only open one demat account with a stockbroker. There is no possibility that you can open multiple demat accounts with the same broker and with the same PAN card.
No, you cannot open a dematerialized account without a aadhar card. It is an important document in almost all the arenas now in India and therefore SEBI has also made it mandatory for every investor to link their account with aadhar card.
You can open your account with any stockbroker registered with the two major depositories in India. Please note that you cannot open a demat account directly with a depository and you will necessarily have to contact a stockbroker. The choice India gives you a chance to open a free demat account and enjoy the services.