‘Demat account’ is a frequently used term in the world of trading and investments. The popularity of these accounts has scaled new heights with close to 4 million Demat accounts opened in 2018 singularly, a 13% increase from the previous year.
The dramatic shift in the savings pattern of Indians from traditional instruments to available alternatives such as stocks is primarily responsible for the jump.Increasing demand for these accounts has also led to depository participants offering the best features at minimum costs, thus benefiting investors. Plus, SEBI has mandated holding a Demat account for stock market trading and investing .
Demat Account in India: Understanding the Basics
Take a look at three crucial terms in this context for a better understanding of Demat account in India.
Dematerialisation
It is a process that facilitates the conversion of share certificates from physical to the electronic form. Shares held thereafter are easier to manage while providing more accessibility from anywhere around the globe Dematerialisation also allows you to monitor and track your holdings seamlessly, on-the-go.
Depositary participants
A depository participant acts as an intermediary or agent of a central depository and provides namesake services to investors and traders. India currently has two central depositories registered with the apex trading and investment regulatory body SEBI.
A depository participant must, therefore, be registered with either of these two licensed operators to open a Demat account.Unique 16-digit client ID Each Demat account is assigned with a unique 16-digit client ID that acts as the investor’s identity. The first 8 digits of the ID represent the depository participant while the last 8 digits act as a unique identification for the investor, facilitating sale or purchase of shares and securities.
A Step-by-Step Guide on How to Open a Demat Account?
Opening a Demat account is quite a straightforward process. If you’re interested in opening one, this step-by-step guide can help put things in perspective.
Step 1: Choose Depository Participant (DP)
Choosing a depository participant (DP) is the first step to open a Demat account. In India, banks, stockbrokers, and online investment platforms offer DP services. While choosing a DP, it is advisable to go for a service provider whose services and features match your needs and requirements.
Step 2: Submit Demat Account Opening Form
Visit your DP’s website and fill out the online Demat account opening form for opening a Demat account. Many depository participants like IIFL offer the ability to open both trading and Demat accounts.
Step 3: Fulfill KYC (Know Your Customer) Norms
Once you have duly filled the Demat account opening form, you will be asked to fulfil the Know Your Customer (KYC) norms. This would require you to submit scanned copies of KYC documents such as your identity proof, address proof, bank account statement, and income proof. It is a good idea to have all of the relevant documents by your side before applying, since this can help you get through the process faster.
Step 4: Go through the Verification Process
After submitting your Demat account opening form along with the requisite proofs, you will be asked by your DP to go through a process called ‘In Person Verification’ (IPV). This exercise is mandatory, and it’s carried out with the intention of verifying the authenticity of your documents. Depending on your DP, you may be asked to be present in person at any one of your service provider’s offices. However, many depository participants now offer IPV services online through the use of a webcam or a smartphone.
Step 5: Sign the Agreement Copies
Upon completion of IPV, you will be asked to sign an agreement with your DP. This agreement generally contains all the duties and rights of the depository participant and the investor.
Step 6: Get Your BO ID Number
Once this is done, your DP shall proceed to process your Demat account opening form. Upon approval of your application, you will be provided with a unique Beneficial Owner Identification Number (BO ID). This BO ID is used to access your Demat account.
Documents Required for Opening a Demat Account
The documentation involved in opening a Demat account is minimal. This makes it easier for new applicants to see the process through from start to finish without any hassles. You are only required to submit the following documents.
Identity proof: A copy of your PAN card with your photo
Address proof: A copy of any one of the following documents shall serve as proof of your residence.
Voter’s identity card
Registered lease agreement
Driver’s license
Passport
Aadhaar card
Landline telephone bill
Electricity bill
Apartment maintenance bill
Copy of your insurance
Ration card
Gas bill
Bank passbook or account statement (not older than 3 months from the date of receipt of documents)
Bank account proof: A copy of your bank account passbook or bank statement (not older than 3 months)
Proof of your income: A copy of your latest salary slips or your Income Tax Return (mandatory for currency and derivatives segment)
What are the Fees & Charges for Opening a Demat Account
The Demat account charges levied by India Infoline are highly competitive and transparent, and they cause no significant financial burden to investors and traders. The entire schedule of fees and charges for opening a Demat account are tabulated below.
Particulars of service Charges Including GST (in Rs.) Account opening fee Rs. 295 Annual Maintenance Charges (AMC) Rs. 0 (for the 1st Year) Dematerialization of share certificates Rs. 17.7 (per certificate) Rematerialization of share certificates Rs. 17.7 Conversion of Mutual Fund units Rs. 0 Destatementization Rs. 0 Reconversion of Mutual Fund units into Statement of Account Rs. 0 Redemption/Restatementization Rs. 0 Postal charges Rs. 47.2 (per request) Why Do I Need to Open a Demat Account?
In the current scenario, if you’re interested in investing in the share market, you cannot do so without a Demat account. That’s how important a Demat account is to share trading. Some of the other reasons that make a Demat account so important are briefly explained below.
Safety:
With a Demat account, you don’t have to worry about dealing with forged or fake share certificates. Each record of shares that you have in your account is genuine.
Convenience:
Proper storage and maintenance of physical share certificates can be tiresome. Also, there’s the risk of having your certificates lost or damaged. A Demat account solves all of these issues.
Accessibility:
Since all the records associated with a Demat account are online and electronic, you can access them from anywhere and at any point in time.
Lower charges:
A Demat account does away with additional costs such as handling charges and stamp duties, which were levied on physical share certificates. This translates to lower costs and significant savings.
Multiple securities:
A Demat account doesn’t merely support the equity share market. It can also be used to hold other electronic financial instruments such as bonds, mutual funds, and debt securities, among others. This enables you to track and monitor all of your investments under a single roof.