Opening a Demat account? Here’s what you should know

Making money is something that everyone aspires to do, and the Indian stock market is one such establishment that has fulfilled this exact dream of millions in the country and abroad. The Indian share market scene is dominated by two major players nowadays, namely, the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange), and a large number of people join in on the action every year.

Someone who wishes to invest or trade in shares at the stock market cannot do so directly and need to open a Demat account with a Depository Participant (DP).

But what exactly is a Demat account?

There was a time when shares were held via physical certificates, and people who traded these on the stock exchange had to go through a long and cumbersome process just to sell, acquire, or transfer them. Several disadvantages plagued physical certificates as well, and these were pretty susceptible to damage as well.

This is where a Demat account came into the picture and transformed the Indian stock market scenario forever. A Dematerialised account or Demat account is a digital account that stores these securities on our behalf, and one doesn’t need physical certificates anymore to operate on the stock market. To open Demat account, there are a few simple steps that one needs to follow, but that is something that we will be addressing later. Now, let us look at the advantages these accounts have over share certificates.

The benefits of a Demat account.

There are several advantages that these accounts bring to the table, and some of them are as follows.

⦁ They allow for fast transfer of shares, and one doesn’t need to wait for days on end for the transaction to be executed. Since time plays a critical role in the share market, this is a major benefit that one can obtain if one opens a Demat account.

⦁ By opting for a Demat account over conventional certificates, one can eliminate the risk of theft and forgery, while protecting the shares from damage due to natural causes as well.

⦁ By using a Demat account, one can easily track all their trading and investing activities in one place, which would help them make investment decisions quickly and implement them conveniently.

⦁ One can add beneficiaries and nominees directly to the profile as well, something that wasn’t possible in the case of physical shares, and one needed to transfer the shares physically.

⦁ A Demat account can be accessed from anywhere, and at any time of the day. This flexibility is a much-appreciated feature of Demat accounts.

These are some of the advantages that one can gain immensely from when they open demat account. Now, let us briefly examine the steps one needs to follow to open a Demat account. There are a few differences involved in opening these accounts across online and offline channels, the primary among them being the fact that you need to personally visit the broker’s office to open an offline account, something that is quite infrequent nowadays. The steps involved are.

⦁ Selecting a depository participant is one of the first steps to opening a Demat account. Compare the facilities that each one offers, and pick one that suits your needs the best.

⦁ Fill out the application form that you can access online, and upload the required list of documents like PAN, address proof, identity proof, etc.

⦁ Once all the documents are in place, the DP would conduct an in-depth verification to ensure safe and ethical trading and investing practices. Once the KYC is verified, you will be directed to pay a certain account opening fee, the sum of which depends on the DP’s existing policies.

⦁ Once all the aforementioned steps are successfully executed, the Demat account would be activated, and a unique identification number would be allotted.

These are the steps that one needs to execute to open Demat account. Now, let us take a look at the charges for demat account.

Demat account charges.

There are a few different forms of charges for demat account that one needs to pay if one wants to participate in the share markets.

⦁ Account opening fees– This is one of the first charges that you would need to pay if you want a Demat account, and this varies widely from DP to the other. While banks may charge a package charge, several DPs do not charge anything to open Demat accounts. This is one of the main reasons why you should compare DPs before committing to one.

⦁ Annual maintenance charges– This is another charge that varies greatly from DP to DP, and one needs to check out the terms being offered by each and pick one that offers the best deal there is. Several DPs waive off the first-year charge, and start the billing cycle from the following year, while others may follow a different policy.

⦁ Custodian fees- The NSDL and CDSL charge a certain fee against the services that they offer in the entire ecosystem, and these charges may or may not be charged by your DP. The range depends greatly on the scale of securities held, and since the DPs offer different policies, it’s best to clarify with them before committing to one.

The transaction charges– Also known as brokerages, these charges vary greatly from DP to DP, and how they are charged varies as well. While some may charge a specific percentage, others would charge a flat fee. Some may charge debit and credit fees, while others would only charge once. Due to these factors, it’s best to compare the brokerages levied by each before opening a Demat account with them.

Besides the fees mentioned above, one also pays taxes, cess, etc., on their transactions, and the scale in such cases varies widely as well.

Final take:

Investing in the stock market is reasonably straightforward, provided you are armed with the correct information set. One should always do proper market research before investing in a particular company. The data mentioned above would help you get started on your stock market journey when you open Demat account.