There are a lot of misgivings and misconceptions about creating a demat account and its functioning. The apprehension especially increases for new investors thanks to contrary experiences shared by friends and family. A shareholder today does not hold on to physical shares; digitisation has made the task much easier.
If you are a beginner in the world of demat accounts, keep reading on to get the basics in place.
What is a demat account?
The word ‘demat’ is derived from ‘de-materialized’. A demat account is a new-age way for investors to hold their shares in an electronic form. It is imperative for every shareholder to apply for demat account opening to enable all electronic settlements of their trade.
In a nutshell, if you wish to start investing in shares or mutual funds or any other financial securities, you must first begin with demat account opening.
How will a demat account benefit you?
There are only benefits and no disadvantages to a demat account opening. It is the easy way to hold all your shares and securities in one place, mitigating the risk of physical shares being stolen, lost or damaged. Besides, buying and selling of physical share certificates were possible only within a limited quantity.
A demat account offers you the convenience and provides for the immediate transfer of securities, should you wish to make a transaction. It only takes a minute! This means you can simply log in to your demat account and transfer your securities even if you are in the middle of a busy day at work or are commuting. What’s more, the transaction will incur no stamp duty, unlike physical shares.
How to open a demat account
Demat account opening is no rocket science. You need to open a demat account with a depository participant. A depository participant is like a bank; it will keep a record of your shares in electronic form. This participant is also authorised to hold securities on your behalf in the ‘dematerialized’ format. All you will need is proof of identity, proof of address and details of your bank account.
In India, you can open your demat account with your PAN card that acts as a proof of identity. Additionally, you can even kick-start the process with a copy of your passport and Aadhar Card, among others, as address and identity proofs. It is best to thoroughly check the list of documents beforehand, though.
You can apply through two main depositories that are registered with the Securities Exchange Board of India (SEBI) and open your demat account through the following only:
- The National Securities Depository Limited or NSDL
- The Central Depository Services Limited or CDSL
You will also require a depository participant. Your primary bank can act as your depository participant, and through it, you can open your demat account. Alternatively, you can also open a demat account through a stockbroking company such as the Kotak Securities or Karvy, among others.
How much will a demat account cost?
The answer to this is simple: Opening a demat account will cost you nothing. However, you will have to pay annual maintenance fees for your account. The fee differs basis the depository participant you have chosen.
Your first transaction (buying or selling) will need you to fill the Know Your Customer (KYC) documents. Additionally, you will also have to quote your depository participant’s ID each time you buy or sell. There are many stockbroking companies such as Kotak Securities, with which you can open a demat account.
Now that you have all the information, go ahead and start investing with a Demat account now.