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Learn How Does a Demat Account Work?

Demat or dematerialised accounts were first introduced in India in 1996 by the National Stock Exchange (NSE). Since then it has revolutionized and transformed securities trading in the country and have made it faster, more secure, efficient and convenient.

The popularity of demat accounts show that Indian investors are gradually moving from traditional investment instruments such as gold, real estate and fixed deposits to equities and derivatives. But what is a demat account and how it works?

What is a Demat

A demat or dematerialization account is a system which allows the account holder or investor to store and trade stocks, bonds, ETFs, mutual funds and other securities in electronic form.

Earlier transactions in stocks and securities were solely available and exchanged as physical certificates which made transactions and storage cumbersome and insecure.

Today, it is mandatory to have a demat account if you want to invest or trade in equities, bonds, ETFs and other securities. The Securities and Exchange Board of India (SEBI) requires every company listed on the stock, derivatives and commodities exchanges to make available their securities in electronic form or demat form.

Demat Account

A demat account allows investors and traders to perform electronic trading of stocks, bonds, mutual funds, exchange traded funds, futures, options and commodities

  • Eliminates the risk of forged and fake share certificates

  • Reduced cost of transactions

  • No paperwork required for transfer of securities

  • Faster and easy discovery of price of any security

  • No risk of losing or damaging physical certificates in storage or transportation

  • Enables technical and fundamental analysis of securities

How a it Works?

it works similar to a savings bank account. While in a savings account, you can store cash in electronic form with a bank, in a demat account, you can store securities with a depository participant (DP) affiliated to the NSDL. The demat account allows you to hold shares and securities of various companies electronically. When you buy shares or securities, those are credited to your demat account and debited when you sell them.

Demat Account Opening Process

Simplicity is definitely a virtue when opening a demat account. SEBI provides a detailed process for opening a demat account but a lot rests on your broker to further simplify that process. Since demat accounts uses a digital method the entire demat account opening process should be carried out online.

Your depository participant (DP) should provide an e-KYC process that can be undertaken online by only using your Aadhar data. While the entire verification and documentation process is done through the internet, the DP should also be able to perform self-identification through online video mode.

Easy to Access and Operate

Investing and trading should be a seamless process with your demat, trading and savings bank account. It is essential that linking between the demat, trading and bank account is hassle free and easy for smooth transactions.

Process to open a demat account?

The procedure for opening a demat account is very simple and easy. Here’s how you can open your demat account:

  • Firstly, you need to choose the depository participant(DP) with whom you want to open your account.

  • Fill up the demat account opening form.

  • Fulfill the KYC details online.

  • Once you have submitted your demat account opening form along with the KYC documents, the next step is to get your documents verified.

  • Once this process is done, you will be given a unique beneficiary owned identity number (BOID) in order to access your demat account.

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