how to open a demat account

Demat Account: Types, Benefits, uses & How to open demat account

Investment Stocks (Equity)

Recently, there has been an increase in the popularity of Dematerialization and Demat accounts. Around 99% of the shares in India have already been dematerialized with the help of Demat accounts. Also, 100% of the stock market settlements take place in Demat form. More and more people are willing to join the stock market and trading field so that they earn a bit more than their salaries. Now, if you are someone wondering what is a Demat account, then here you go:

Demat is the abbreviated form of Dematerialization which is a procedure to allows cFlients to convert their physical share certificates into electronic format. Demat accounts enable you to carry out the same. Someone who has little to no knowledge about Demat accounts will now ask what is the use of Demat accounts.

A Demat account is a must if you wish to invest in shares and the stock market. The SEBI regulations have made the dematerialization of all shares mandatory. These accounts can generate a portfolio of stocks, bonds, and other such stock market assets. Moreover, these make the share trading procedure faster and more secure.

If you are looking for an answer to how to open a Demat account in India, then don’t worry! We have got you covered on this front and even more. Read on to gain detailed knowledge about Demat accounts, their types, features, benefits, etc.

Moreover, this article will provide you with valuable inside about the best Demat and trading accounts in India besides answering your doubts about Demat accounts.

What is a Demat Account?

A Demat account is a type of financial account that allows you to hold securities and shares electronically. This concept was put forward in the year 1966 in our country as a better alternative to troublesome physical certificates of shares and securities. Since then, it has become mandatory to own a Demat account for stock market investors.

With a Demat account, you can dematerialize physical shares or even buy or sell shares through it. Besides making share trading quicker and more convenient, a Demat account also helps you avoid risks and hassles related to physical certificates. Moreover, you can also save a wide range of investments like equity shares, bonds, debt securities, ETFs, and so on.

Types of Demat Account

There are 3 types of Demat accounts available for different kinds of investors. Find them explained below:

1.  Regular Demat Account

Regular Demat account is the type of account used by traders and stock market investors. These account holders need to reside in India. Moreover, SEBI has also launched an account known as Basic Services Demat Account (BSDA) that is meant for investors who have a holding value of not more than INR 2 lakhs. The maintenance charges for the Regular Demat account is very low.

2.  Repatriable Demat Account

This is a type of Demat account that can be used to transfer funds abroad. It is meant for NRIs who need to have an NRE bank account associated with the Demat account.

3.  Non-Repatriable Demat Account

This is a type of Demat account used by Non-Resident Indians (NRIs). Funds cannot be transferred overseas with this type of account. It needs an NRO bank account linked along with.

Features and Benefits of Demat Accounts

Demat accounts are said to be highly beneficial. Go through the list of features and benefits of Demat accounts given below and see for yourself:

1.  Transferring Shares

You can transfer the shareholdings from your Demat account via a Delivery Instruction Slip (DIS) for share trading.

2.  Loans

The securities you hold in your account will allow you to take up several types of loans from the bank. Your securities residing in your Demat account could serve as collateral for your loan from the bank.

3.  Dematerialization and Rematerialization

Demat makes converting securities into various forms an easier task. You just need to provide the Depository Participant (DP) with the required instructions to convert the physical certificates of shares into electronic form.

4.  Easy Access

Demat accounts are accessible from several types of media. The remote access benefit is available for all investors registered for net banking with the bank concerned.

5.  Merging Bank Accounts

You can also merge your bank accounts with your Demat account for better convenience in electronic funds transfer.

6.  Nomination Facility

Investors will receive a nomination facility as well for opening a Demat account online.

7.  Freezing Account

Investors hold the option of freezing their Demat accounts for a specified time duration. This is usually executed to keep from any unforeseen credit or debit into the account. Also, if the account holder wants to avail of the freezing option, then they must hold a given quantum of securities in the account.

8.  Risk-free

Unlike physical shares, Demat accounts cannot be damaged, misplaced, stolen, etc. So, the electronic shares remain safe in your Demat account.

9.  Simple Procedure

You can easily perform tasks with the electronic system. It makes time-consuming procedures faster and convenient. The slips can also be sent electronically to the depository participant. This makes the procedure faster and hasslefree.

10.  Other Benefits

The Demat account holder will enjoy also benefits that come along with the securities. Access to benefits like interests and dividends will be provided automatically. Other corporate actions like stock split, bonus issue, etc. are also updated in the Demat account automatically.

How does a Demat Account Work?

A Demat account on its own can only be used to hold shares, stocks, mutual funds, equities, etc. But, to execute trading, then you need to have two more accounts: bank account and a trading account.

The cash and fund flow takes place through your trading account. And your bank account linked to your Demat and trading accounts allows you to transfer cash to the trading account.

The broker credits the shares to the investor’s Demat account when they are purchased. The balance shows up in the holding statement. However, you can view the holdings online if you trade online.

On the other hand, the investor provides delivery instructions to the broker when the shares are sold. The Demat account will get debited with the shares and the investors will be paid the price at which the shares got sold. But, if you trade online, then the amount will be automatically reflected in your account.

So, to sum up, the following points will give you a gist of how a Demat account works:

  • An investor places an order on the trading platform, then a ‘buy request’ is sent by your DP to the stock exchange
  • Now, the stock exchange looks for matches to your buy request with similar sell requests. Then, an order is forwarded to the clearance houses.
  • Finally, the clearance houses finalize the trade. They transfer the required quantum of shares from the seller’s Demat account to credit them into your Demat account.

How to Open a Demat Account in India

Investors can quickly and easily open a Demat account in India. The application can be made to open Demat account online as well. Given below are the steps you need to follow to open a Demat account in India:

Step 1. Register with a broker of your choice.

Step 2. Submit a duly filled in application form along with the required documents. The documents include income proof, identity proof, address proof, and so on.

Step 3. Once you have submitted the documents, a verification process shall initiate.

Step 4. If that is completed successfully, then you will receive a unique client ID and your Demat account number as well.

Step 5. After the entire procedure is completed, the investor receives a letter from the depository in question. This letter provides all the details of your Demat account number.

Demat Account Charges

You can open a Demat Account for free with certain DPs but still, there are charges levied on your account for smooth operations. Now the charges vary from one brokerage firm or bank to another. Given below are some of the Demat account charges:

1.  Annual Maintenance Charges

As per the revise guidelines of SEBI, applicable from 1st June 2019, no annual charges will be levied on debt securities of up to INR 1 lakh. A maximum charge of INR 100 shall be levied on securities in the range of INR 1 lakh to INR 2 lakhs.

2.  Custodian Fees

The custodian fee is charged by the depository participant as a one-time yearly fee. It is paid directly to the depository.

3.  Demat and Remat Charges

These expenses are a percentage of the value of total shares sold or purchased. This is levied to pay for the digitization procedure and the physical print costs of shares.

Other fees such as credit charges, brokerage charges, Demat account opening charges, CESS, applicable taxes, etc. are also levied. Moreover, certain institutions also charge an account opening fee.

Eligibility Criteria to Open a Demat Account

The massive economy of the country does include stock market playing some part in it. But, sadly, not everyone can jump in this field. Given below are the eligibility criteria to open a Demat account:

  • Age: No minimum age specified. Both minors and adults can open a Demat account.
  • Parents or the appointed guardian can open a Demat account on a minor’s name. They will be in charge of it until the child grows up.
  • PAN card: You need to have a PAN card to open a Demat account and execute stock trading
  • KYC details: KYC documents are also required.
  • Both Indian and Non-Indian Residents can apply for a Demat account.
  • Hindu Undivided Families (HUFs) and companies are also eligible.

Documents Required to Open a Demat Account

A Demat account is just the same as any bank account, just that it holds shares and securities instead of money. The documents required to open a Demat account are the same throughout all the institutions. Given below is the list of documents you need to open a Demat account:

Income Proof

  • Copy of the Income Tax Return (ITR) Acknowledgement slip
  • Net worth certificate or copy of the annual account statements authorized by a CA.
  • Salary slip or filled in Form 16
  • Statement of the Demat accounts your hold
  • Past 6 months’ bank statements
  • Documents to prove self-declared ownership of assets

Identity Proof

  • PAN card with a valid photograph
  • Aadhaar card
  • Voter ID
  • Driving License
  • Passport
  • ID card with the applicant’s photo issued by the Central or State Government, PSUs, SCBs, Public Financial Institutions, etc.

Address Proof

  • Passport
  • Voter’s ID
  • Ration Card
  • Driving License
  • Lease documents
  • Flat maintenance bill
  • Copy of insurance
  • An ID card that contains your address
  • Utility bills of the past 3 months, etc.

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Demat Account Number and DP ID

The Demat account holders are issued a Depository Participant ID or DP ID. This is a part of your account number. The first 8 digits of your account number are denoted by DP ID. This data is required by both depository and depository participants while converting your physical shares to electronic form, transferring shares, etc.

Conversion of Shares

As per the latest rules brought out by SEBI, all the shares and certificates issued after 31st March 2019 need to be dematerialized. Shares can also be transferred from one Demat account to another while switching brokers. You can also transfer shares if you want to merge different portfolios.

Top 10 Demat Account Providers in India

Sl. No. Demat Account Provider Brokerage Charges Annual Maintenance Charges
1. 5 paisa INR 10 or INR 20 per order (depends on the plan selected) Nil or INR 45 per month
2. Zerodha INR 20 per trade INR 300 per year
3. Upstox 30 days free brokerage after that INR 20 per order INR 25 per month
4. Sharekhan 0.50% per share INR 400 p.a. (1st year free)
5. India Infoline (IIFL) 0.10 % to 0.50% depends on the plan selected INR 250 p.a. (from 2nd year, 1st year’s AMC is waived off)
6. Angel Broking 0.40% per share INR 450 p.a. (1st year free)
7. ICICI Direct 0.55% INR 700 (1st year free)
8. Kotak Securities 0. 049% to 0.49%% INR 50 per month
9. HDFC Securities 0.50% INR 750 (1st year free)
10. Motilal Oswal 0.50% Up to INR 899 (depends on the plan)

1.     5Paisa Demat Account

5Paisa Demat account is one of the cheapest and the best Demat accounts in India. They offer a flat brokerage rate of INR 10 per trade. That makes 5Paisa the lowest brokerage Demat account in India. Besides, their account opening procedure is very fast and they also have an app for convenient usage.

2.     Zerodha

Zerodha Demat account is one of the most trusted brokers in India. They serve more than 30 lakh customers. And the reason behind this is their impeccable customer service. Moreover, opening a Zerodha Demat account is a quick and easy affair. Lastly, the Zerodha Demat account charges are extremely low and affordable.

3.  Upstox

Upstox Demat account is often referred to as the fastest trading platforms in India. They provide free and fast account opening with low account charges. Currently, Upstox Demat account is offering zero brokerage fee for 30 days on all its new accounts.

4.  Sharekhan

Sharekhan Demat account is one of the best Demat and trading accounts in India. Their current base has exceeded the 20 lakh margin. Moreover, they don’t charge anything for Demat account opening and their AMC is also pretty low and affordable.

5.  India Infoline (IIFL) Demat Account

IIFL Demat Account is provided by IIFL Securities that is one of the largest stockbroker services providers in India. They serve over 40 lakh customers and provide Demat accounts at very low charges. Moreover, they will also guide you with your investment decisions.

6.  Angel Broking Demat Account

Angel Broking Demat Account is one of the oldest providers of brokerage services in India. They currently serve more than 2.15 million broking accounts. Besides providing their services at minimal charges, their customer service is also incomparable. These features make it the best Demat account for beginner investors.

7.  ICICI Direct

ICICI Direct Demat account is a 3-in-1 Demat account.  It is one of the largest and best Demat and trading accounts in India. ICICI Direct serves over 20 lakh investors and delivers a wide range of investment plans and services. The ICICI Direct Demat account charges include an opening charge of up to INR 975 and an annual maintenance charge of INR 700 as per the scheme you choose.

8.  Kotak Securities

Kotak Demat account is provided by the brokerage branch of the Kotak Mahindra Bank i.e. Kotak Securities. Their customer base is over 12 lakhs and their branches are spread across 1200 locations in India. The Kotak Demat account charges include opening charges of INR 750 and a maintenance charge of INR 50 per month.

9. HDFC Securities

HDFC Securities Demat account is a product of the largest private banking institution of India i.e. HDFC. The HDFC Demat account charges for opening an account is nil and the AMC is INR 750. By integrating your savings, trading, and Demat account together, the HDFC bank Demat account makes fund transfer easier.

10.  Motilal Oswal Demat Account

Motilal Oswal Demat Account is one of the top-rated services provided by the well-reputed bank Motilal Oswal. This is one of the best Demat accounts for beginners as it doesn’t have any account opening charges. Besides, it provides several types of schemes as per your needs.

Demat Account Vs Trading Account

Plenty of people don’t know that email and trading accounts are two very different things. They are interconnected for sure but that does not imply that the terms can be used interchangeably.

The table given below explains the points of difference between Demat and trading account:

Sl. No. Features Demat Account Trading Account
1. Meaning A Demat account holds your securities, shares, etc. in a digital form The trading account acts as a platform or an interface to sell or buy shares and stocks.
2. Functioning A Demat account allows you to convert your physical share certificates into an electronic form. Trading account is needed to buy and sell stock market shares. It can also exchange money.
3. Nature The Demat account shows all the shares and securities you currently hold. The trading account shows you all the transactions carried out in the stock market.
4. Time period evaluation Yearly (on 31st March of each FY) 3 months, 1 year, etc. (Undefined time intervals)
5. Role A Demat account helps you receive the delivery of your shares when you are allotted or when you buy some. Helps to carry out transactions in the stock exchange market. You can also transfer money from your bank account to your trading account if both are linked.

Entities Involved in Demat Accounts

Depository and Depository Participants are the two primary entities who are involved with Demat accounts. Now, the depository is someone or an organization responsible for handling the investment portfolio of the investors. On the other hand, the Depository Participants (DPs) play the role of being an intermediary between investors and depositors.

For example, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are the only two depositories in India. All the commercial banks and brokerage agencies in India are the Depository Participants.

What is Dematerialization?

Earlier, shares and stocks were held as physical certificates. That made the share trading procedure extremely tough. Trading shares and stocks at a short notice became difficult. The certificates could have been damaged, faked, stolen, or forged.

So, to get rid of such problems with physical certificates of shares, an organization called National Securities Depository Limited (NSDL) was founded in 1996. NSDL put forward Demat accounts which can store shares and securities electronically. Basically, you can convert your physical shares into electronic ones using a Demat account. This procedure is known as dematerialization.

Explaining the Dematerialization Process

The dematerialization process is very simple and calls for little effort on your side. Given below are the steps to help you with the same:

  • Firstly, you need to open a Demat account with a DP (Depository Participant). The DP is the middle man between the investor and the depository.
  • After your Demat account is activated, you need to submit a Demat Request Form (DRF) and your physical share certificates to the DP.
  • Then, the DP will send a request to the company’s Registrar and Share Transfer Agent (RTA) through the depository.
  • When the request is approved, your physical share certificates shall be destroyed and then, a dematerialization confirmation will be sent to your depository.
  • The depository will forward the dematerialization confirmation message to your depository participant. Then, your Demat account will be subsequently credited with the appropriate number of shares.

What is Rematerialisation?

Rematerialisation is the procedure of converting electronic certificates into physical shares. This is done to avoid maintenance charges of a Demat account that holds the least number of shares. To do the same, you need to submit a Remat Request Form to the depository participant that will convert their securities into physical share certificates. To facilitate the conversion, each unit is issued an identification number by the RTA (Registrar and Transfer Agents).

Is it Mandatory to Have Demat Account for Trading?

Yes, if you want to buy and sell shares and stocks, or in other words, engage in stock trading, then you need a Demat account. This is necessary because Demat account acts as an inventory for the shares you buy. The shares and stocks allotted to you are delivered in a Demat account.

Moreover, these days share trading occurs in a dematerialized format, so, you can’t indulge in stock trading without having a Demat account.

FAQs about Demat Account

Q1. How long does it take to open a Demat account?

Ans. Demat account opening procedure is very simple and quick. After you have submitted the account opening form and all the documents required, it will take around 7 – 14 days to open your Demat account and have it actively running.

Q2. What are the documents required to open a Demat account?

Ans. The documents required to open a Demat account are as follows:

  • Aadhaar Card
  • PAN Card
  • Latest Bank Statements

Q3. Can I open a joint Demat account?

Ans. Yes, you can. A Demat account can have a maximum of 3 account holders for the same account. There shall be one main account holder and 2 other joint account holders.

Q4. Is Demat account required for purchasing SIPs?

Ans. No, Demat accounts are required for online share and stock trading. Mutual fund scheme investments like SIPs do not necessarily require you to own a Demat account.

Q5. Can companies hold a Demat account?

Ans. Yes, companies too can hold Demat accounts. Demat accounts can be opened in the name of HUFs, both public and private limited companies, individuals, and trusts except partnership firms. Such firms cannot open a Demat account in their name, so they have to open it in their partners’ names.

Q6. Where can I open a Demat account?

Ans. You can open a Demat account at a depository participant (DP) or any bank that provides brokerage services.

Q7. Are my shares safe in the Demat account?

Ans. The Depository Participants (DPs) hold your shares on behalf of NSDL and CDSL which are two national depositories. These institutions receive sponsorship from government-owned organizations. Hence, rest assured that your shares are risk-free and safe in your Demat account.

Q8. Do I need to have a Demat account for being able to apply for an IPO?

Ans. Not really! Investors can get IPO shares in the physical form. But, since the shares issued can only be traded online, so it is better to have a Demat account. This way, your IPO shares will be directly credited to your account when you buy them.

Q9. How many Demat accounts can I own?

Ans. You can hold multiple Demat accounts. But, you can open only one Demat account with a depository participant. So, for yet another account, you need to find another DP.

Q10. Do I need to pay anything to open a Demat account?

Ans. Depends on the Depository Participant you are opening the account with. Some DPs levy Demat account opening charges while some do not.