Demat account is must for buying or selling stocks from the stock market. Shares can be sold or purchased only through Demat. Investors should open an account through a SEBI registered stock broker. This means that if you want to buy or sell shares from the stock market in India, it is mandatory to have a Demat account. Apart from this, if you have to apply your shares in Initial Public Offering (IPO), then it is very important to have a demat account.
Demat Account
An account where you can keep your shares and the shares are protected electronically is called a demat account.
Depository Participant
It is important to know that in present times, Demat services are offered by Broking House as well as many other financial and banking institutions. Institutions providing depository services are known as depository Participant. Participant acts as an intermediary between NSDL/CSDL, and the investor.
Account Opening Process
- An investor can open a demat account with a SEBI registered Depository Participant (DP) only.
- Investor has to fill the account opening form with stock broker like zerodha etc and submit copies of documents accepted by SEBI, proof of identity, proof of address.
- While opening the account, the original PAN card and all the applicants are also required to bring the original documents for verification.
- The DP also obtains a copy of the contract and a schedule of charges to the investors.
- After processing the account opening documents, the DP provides the account number (client ID) to the applicant.
- After the applicant’s account is opened with a DP, the applicant becomes a client, also known as BO (Beneficiary Honor), and is assigned an allotted account number BO-ID (Beneficiary Honor Identification Number).
Document Required for Opening a Demat Account:
Below is the of proof of identity required for account opening.
- pan card
- Voter ID
- Passport
- Driving License
- Bank Statement
- Cancelled Cheque (Link your bank account with Demat)
- IT returns
- Electricity / landline phone bill
Demat Account Fee
To open a demat account you have to pay a fixed fee. This fee is mainly divided into three parts:
- Annual Maintenance Fee: Annual maintenance fees charged to maintain the account.
- Account Opening Fees: This fee is charged by stock broker to create new account. some broker charge Rs.0
- DP Chrages: DPs charge a clear fee per transaction. In addition, the DP also charges for converting the shares into physical form or vice versa. Fees may vary for both demat and remat requests. Some DPs charge a one-time fee per certificate with a variable fee for demat, while others charge only a variable fee.
With understanding this demat account, also know that like any financial service, there are many types of charges associated with a demat account. In this, special attention should be paid in choosing the broker. In addition to account opening fees and broking charges, transaction charges should also be looked into.
Method of Trading of Shares
Apart from demat account, it is also to be noted that there are two depositories in our country – National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), through which the trading of shares is conducted by various depository participants.
Benefits of Demat Account
- You can even buy or sell a single share.
- Earlier it was difficult to sell shares, you had to sell shares in a group. Also, you could not sell shares in odd numbers like – 21 etc .; But now it is not so. You can also easily sell 1 share through a demat account.
- Shares can be transferred immediately. Previously, shares were sent to the company or registrar for transfer, which took months and often disappeared. But now it is not so, you can transfer them immediately.
- No stamp duty on security transfer. Once you have paid the Security Transaction Tax or the Securities Exchange Tax, there is no need to physically purchase the share transfer stamp. Now there is no need for paper share certificate.
- Paper certificate was mandatory when there were no demat accounts. But now these problems is resolved by demat account.
- There is no possibility of theft or robbery after buying shares through demat account. There is absolutely no chance of them getting stolen or robbed because all the shares are in electronic form.
- You can access your account from anywhere.
- Operate with a single account.
- You do not need to open a separate account to buy loans like bonds, NCDs, tax-free bonds etc.
- Bonus and Right Shares directly created to your demat account
- Now days opening demat account is very easy. Either use can open an account online or just fill up account opening form submit your document with from and within 2-3 day your account will activate.
- Now you can nominate any person as you wish.
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