What is Demat Account ?
Demat Account is used to hold shares and securities in electronic format. The full form of Demat account is a Dematerialised Account. Likewise savings accounts with banks allows easy access to our funds, DEMAT does same for investors provides security from theft and mishandling.
The purpose of opening a Demat account is to hold shares that have been bought or dematerialised (converted from physical to electronic shares), thus making share trading easy for the users during online trading.A Demat Account holds all the investments an individual makes in shares, government securities, exchange-traded funds, bonds and mutual funds in one place. Nowadays, the Demat account is a prerequisite for stock investment.Demat enabled the digitisation process of the Indian stock trading market and enforced better governance by SEBI.It was first introduced in 1996 by NSE. Initially, the account opening process was manual, and it took investors several days to get it activated. Today, one can open a Demat account online in 5 mins. The end-to-end digital process has contributed to popularising Demat, which skyrocketed in the pandemic. Benefits of having Demat Account
i. Seamless and fast transfer of shares on real time basis and tracking facilities of trading activities and also easy to add beneficiary
ii. Facilitates digitally secured storing of securities
iii. Eliminates theft, forgery, loss and damage of security certificates
iv. All-time access from anywhere and anytime from your desktop and mobile application.
v. Automatically credit of bonus stocks, rights issues, split shares.
vi. Transfer the Securities immediately
vii. Encourages large number of investor to do online trading activity which bring a lucrative returns
viii.The Indian exchanges now follow the settlement cycle of T+2 days facilitated by the Demat account. You pay the seller on the second business day when you buy shares following the settlement cycle, and your Demat account gets automatically credited with the purchased securities.
How does Demat account work?
1. Trading in demat is very much similar like physical trading the only difference is Demat is completely Online Mode.
2. For placing any order we need to have both trading and demat account link to each other
3. Once the buy order is placed, demat account before processing the final order would detail the market price of share and availability of share and at last on completion of processing shares are reflected in the statement of holding in our demat account.
4. And incase of sell of particular shares , a delivery instruction note is provided with the details and shares are debited from the account and equivalent money is credited in our trading account.
5. The Demat account opening process involves three parties - your bank, the depository participant, and the depository. Tagging your bank account with your Demat account is critical for trading seamlessly. Linking your account details ensure when you buy shares, the money gets debited directly from your bank account, and when you sell, the proceeds get automatically credited.A depository participant can be a non-banking financial institution, a bank, or a stockbroker.
6. Demat account is compulsory per the Depository Act passed in 1996. To facilitate it, the National Securities Depository Limited (NSDL) was formed in 1996. And, the Central Depository Services Limited (CDSL) became the second such institution three years later.
Types of Demat account
1. Regular Demat account: Regular Demat account is for resident Indian investors who want to trade in shares alone and need a storing for securities. The stocks get debited from your Demat account when you sell and credited when you purchase during trading. If you are trading in F&O, you don't need a Demat account because these contracts don't need storage.
2. Basic Services Demat Account: It is a new type of Demat account introduced by the SEBI. These accounts don't have maintenance changes if the holding value is less than Rs 50,000. Between Rs 50,000 and 2 lakh, the changes are Rs 100. The new type of account targets new investors who are yet to open a Demat account.
3. Repatriable Demat Account: Non-resident Indian investors open a repatriable account to transfer their earnings from the Indian market abroad. If you want to open a repatriable account, you'll have to close your regular Demat account in India and open a non-resident external account to receive payments.
4. Non-repatriable DEMAT account: This account is also for non-resident Indians, but it doesn't allow fund transfer to foreign locations.
How to Open DEMAT Account
Below are Top Broking Firms In India :
1. Zerodha - https://zerodha.com/open-account/
2. Angel One - https://www.angelone.in/
3. HDFC Securities - https://www.hdfcsec.com/
4. ICICI Securities - https://secure.icicidirect.com/
5. Groww - https://groww.in/
6. Upstox - https://upstox.com/
You can't trade in the Indian stock exchange if you don't have a Demat. Update yourself on the account opening process, charges, and select a trusted depository participant.
List of documents required to open a Demat account, including personal details and bank/income details. Here is a list of the documents required.
i. Proof of identity
ii. Proof of address
iii. Proof of income
iv. Proof of bank account
v. PAN card
vi. Passport size photographs
The online method has made the account opening process simple. You can now set up a Demat account by submitting documents and completing KYC online.