A Demat account is an important tool for safekeeping shares. It eases the process of share trading and makes it quicker as well. Initially, shares were held in a physical form via share certificates. That made the entire procedure tedious and time consuming. To eliminate such limitations, the National Securities Depository Limited (NSDL) was established in 1996. They brought the concept of Demat accounts that enabled electronic storage of shares and securities of companies. In India, if you want to invest in the stock market, it is compulsory to open a Demat account.
Benefits of a Demat account
Let us explore the benefits of owning a Demat account
1. No paper worries
Before the advent of the Demat account, shares existed as physical paper certificates. If you held shares of a company, you had to safe keep a dozen of paper certificates. These were vulnerable to tampering, theft, loss, and forgery. Moreover, the transfer of shares involved lengthy paperwork that was prone to error and delays. With a Demat account, you can store all these shares electronically in a safe and secure digital repository.
2. Easy storage & transfer
This allows you to store any number of shares, so you can trade in volumes and monitor the details of all the shares you hold in a Demat account. It further facilitates the swift transfer of shares while trading online.
3. Automatic updates for bonus stock-splits
If an initiative of the company whose shares you are holding brings in a change to its stocks such as bonus issue, stock split, etc., it will be updated automatically in your Demat accountc.
4.All-in-one investment storage
Besides the shares, the Demat account can also hold multiple assets, like bonds, mutual funds, exchange traded funds, government securities, etc.
5. Easy access online
You can access your Demat account anytime, anywhere, through your smartphone or laptop.
6. Easy nomination process
A Demat account also provides the nomination facility as per the process described by the depository. In case of the investor’s demise, the appointed nominee will receive the shareholding in their Demat account.
How does a Demat Account work?
Demat accounts are primarily used to hold the bought shares. Check here step by step process:
- In case you want to buy or sell a specific share, you need to login to your Demat and trading account, which is also linked to your bank account.
- When a ‘buy’, or ‘sell’ request is placed in a trading account, the Depository Participant, forwards this to the stock exchange on an immediate basis
- Suppose the order is to ‘buy’, the stock exchange then searches a seller who wants to sell shares and if price matches, it is sent to clearance houses to debit those many shares from the seller’s Demat Account and credit them to the buyer’s Demat Account
- Please note, the buyer and the seller may hold Demat Accounts with Depository Participants belonging to different depositories
Types of Demat account
In India, there are three major types of Demat accounts offered by Depository Participants.
1. Regular Demat accounts
These are meant for Indian residents. If you are dealing with investment and equity trading, a regular Demat Account is the best option for you. Here the charges are dependent on the type subscribed, volume that is there in the account and the various terms and conditions set by the depository and the DP (Depository Participant).
2. Repatriable Demat account
This kind of Demat Account is good for NRIs, who wishes to invest in the Indian Stock Market quickly from any part of the world. Such an account is useful for NRIs as with the help of such an account, they can transfer their funds to various foreign countries. But NRIs looking to hold a Repatriable Demat Account need to possess an associated NRE bank account.
3. Non-repatriable Demat account
This is similar to a repatriable Demat Account and is also for NRIs. However, this account doesn’t allow you to transfer funds abroad. This requires you to link it to a Non-resident Ordinary (NRO) bank account.
Documents required for Demat account opening
To open a Demat Account without any hassle, you should have some essential documents. Listed below are the documents that’s required to open a Demat account with Bajaj Financial Securities Limited.
- PAN card
- Proof of address (Aadhar card, driving license, passport)
- Photograph
- Signature on white paper
- Income proof, for activation of futures and options segment
Demat account charges
While many brokerage firms offer free Demat account opening, investors should be aware of the associated fees that contribute to account maintenance and transaction processing. These charges can vary among different brokerage houses, including banks.
Key fees typically include:
- Annual Maintenance Charges (AMC): Most firms impose an annual AMC for Demat accounts. The specific charges are determined by the depositories (NSDL or CDSL) based on the investor's holdings. SEBI has implemented revised AMC rates for Basic Services Demat Accounts (BSDA) effective June 1, 2019, offering exemptions for certain debt securities.
- Custodian Fees: A one-time or annual custodian fee is charged by depository partners. This fee is paid directly to the depository by the brokerage firm.
- Demat and Remat Charges: These charges are levied as a percentage of the transaction value to cover the costs associated with digitising or physically printing securities.
In addition to these core charges, investors may also incur fees for credit services, applicable taxes and cess, rejected instructions, and other miscellaneous expenses.
While Demat accounts remain a popular investment tool for the stock market, the emergence of online trading platforms has provided investors with the option to trade without the need for a Demat account.
How to use a Demat account?
Using a Demat account is simple. Your Demat account gets linked with your open trading account online, which in turn gets linked with your bank account. To begin trading, you need to transfer funds from your bank to the trading account.
After adding funds, you can place an order to buy shares using your trading account. Once the order gets executed, the shares will get transferred to your demat account by the end of T+1 days, where T is the day the order got executed. Since both demat and trading account are closely integrated, all these actions happen swiftly and seamlessly. Similarly, you can sell a share in your demat account by placing a sell order in the stock exchange using your trading account.
Conclusion
A Demat account is an essential tool for modern investors, streamlining the process of managing investments by holding securities in digital form. It offers numerous advantages, such as enhanced security, ease of transfer, and efficient portfolio management, eliminating the risks associated with physical share certificates. Opening a Demat account is straightforward and can be done online, providing convenience and accessibility. Despite some costs and potential cyber risks, the benefits of a Demat account far outweigh the drawbacks, making it indispensable for anyone engaged in the stock market. By digitising investments, Demat accounts significantly enhance the efficiency and security of trading and holding securities.
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