A Demat account is just like a bank account but instead of money held in your bank account, Demat accounts holds your securities – in the form of shares, bonds, or debentures.

If you wish to buy securities in the stock market, you first need to open a Demat account online.

Here’s what you need to know about opening a Demat account.

What is a Demat account and when do you need it?

A Demat account is an electronic account where your securities are held. An online Demat account serves as an alternative to physical certificates.

In order to trade in securities in the Indian stock market, it is necessary for investors, to open a Demat account with a Depository Participant (DP).

What are depositories and depository participants (DPs)?

Depositories are organizations that hold your securities electronically and also facilitates transactions. In India there are two depositories registered with SEBI are National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

Depository Participants (DP) act as agents between the depositories and investors. In order to get the services of a depository, you need to go through a DP. In order to get the services of the DP you need to have an online Demat account

What are the benefits of a Demat account?

  • Your shares and securities are securely held
  • The transaction cost is less compared to the physical segment
  • Convenient and fast for electronic settlements
  • Reduced paperwork in case of transfer of securities
  • Risks with physical certificates, like thefts, non-delivery, and fake certificates, are eliminated
  • Sell any number of shares you want
  • Invest online

Are any fees associated with opening a Demat account?

Most depositories do not charge a fee to open a Demat account. Some offer refundable account opening charges while others have a fixed charge.

But depositories can charge a transaction fee, annual maintenance fee, and charges for converting shares from physical to electronic format – in case you need physical shares to be converted to Demat form.

How to Open a Demat account?

  • Firstly choose the Depository (DP)
  • Fill Demat account opening form
  • Submit all documents
  • In person Verification by DP
  • Account number/ID will be provided by DP

Once you receive the copy of the terms of the agreement, the rules and regulations, and the charges that will apply, you need to fill in the account opening form.

Do make sure to add a nominee when you open a Demat account. Submit all the required copies of documents like address proof, ID proof, and your PAN card

After the submission of the application, the DP staff will then contact you to conduct in-person verification. Once the verification is done to the satisfaction of the Depository, you will receive your Demat account details from your DP.

It takes at least one to two weeks to open a Demat account. There is no compulsory requirement to maintain a minimum balance of shares while opening a Demat account. You can open multiple Demat accounts in the same name with different or the same Depository.

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].