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Demat Account

Opening Dematerialised Account

Last Updated 01st Dec 2020

  • Demat Account is an account that provides facility to hold shares, securities & other investments into electronic format at one place.
  • Any residential or non-residential Indian can open a Demat account through a depository participant.
  • National Securities Depository Limited and Central Depository Services Limited are two depositories which are responsible for managing the financial portfolio of investors.
  • Demat Account can be opened by visiting the office of the depository participant, a bank or an intermediary.
  • There are various charges such as annual maintenance charges, custodian fees, Demat and remat charges and more you need to pay to open a Demat account.
  • Demat Account provides various benefits such as transfer of shares, loan against Demat Account, freezing of accounts etc.
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What is Demat Account?

Demat Account is an account that provides facility to hold shares and securities & other investments such as exchange-traded funds, bonds and mutual funds into electronic format at one place. It facilitates the process of dematerialisation, which is the process of converting physical share certificates into electronic format, thus eliminating the need for holding physical shares and promoting seamless tracking and monitoring of holdings during online trading.

How does a Demat Account work?

A demat account works similar to a savings bank account except that in a savings account, individuals can store cash in electronic form with a bank and in a demat account, the securities are stored with a depository participant (DP). Also, individuals can hold shares or securities of various companies electronically as they are purchased or sold they are debited/credited to your demat account.

Types of Demat Account

Individuals can opt to open Demat account in of any of the following types:-

  • Regular Demat account – All residing Indian citizens can open a regular Demat account for holding shares and other securities in an electronic format.
  • Repatriable Demat account – A repatriable Demat account can be opened by Non-resident Indians to transfer money from overseas provided it is linked to an NRE bank account.
  • Non-repatriable Demat accounts – Non-repatriable accounts are also meant for NRIs; however, these accounts cannot be used to transfer funds from abroad. An individual has to link an NRO bank account to own and operate this type of Demat account.

Depository & Depository Participants

In India, there are primary two entities that are involved with the functioning of the Demat Account, which is as follows:

  • Depository: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are two depositories that manage the financial portfolio of Demat account investors.
  • Depository Participants: Various commercial banks and brokerage agencies that act as an intermediary between investors and depository are known as depository participants.

Features & Benefits of Opening a Demat Account

While you can hold your shares and other investments in physical form, these are some of the benefits of opening a Demat account.

  • There is the elimination of risk of damage, misplacement, forgery or theft of physical shares.
  • With an online Demat account, it is easy to do seamless transactions in much less time
  • If you have registered for net banking, you can access your Demat Account in remote locations as well.
  • It is easy to merge your bank accounts and Demat accounts for the facilitation of electronic fund transfer.
  • To prevent any unwanted transaction in your Demat accounts, you can freeze your Demat Account for a specific period.

Facilities Offered by Demat Account

Investors can open their Demat Account and avail services offered by depositories through depository participants. These are the facilities that you can avail through Demat Account.

  • Transfer of shares: With the help of Delivery Instruction Slip, you can easily transfer your shares to another individual in a hassle-free manner.
  • Loan against Demat Account: You can also avail loan facilities from financial institutions against the security of shares kept in your Demat Account.
  • Automatic updation of benefits: As benefits associated with the shares including dividend, refunds, interest, stock split, rights issue, bonus shares, etc. gets automatically updated in this Account, you can thus easily avail it.
  • Conversion of shares: The primary purpose of opening a Demat account is to convert physical shares into electronic form. Similarly, you can also get the electronic securities converted back to physical form.
  • Freezing of Demat Account: If you hold a specific quantity of shares or other investments, you can freeze your Demat Account for a particular duration to prevent any unnecessary debit/credit to Account.
  • Multiple access options: You can access your Demat Account using a desktop, laptop or smartphone from anywhere around the world.

How to open a Demat Account?

The process of opening a Demat account is similar to opening any other account in the bank. You can open a Demat account through a depository participant by following the steps as mentioned below:

  • Visit the office of the depository participant, a bank or an intermediary and fill an account opening form.
  • You must also attach a passport-sized photograph along with photocopies of the required documents.
  • Provide the original documents for verification.
  • The DP will provide you with a copy of the rules and regulations, including the terms of the agreement and charges that you need to pay.
  • A representative of the DP will contact you for verification of all details.
  • Now, after successful verification, you will get an account number/ client ID from the DP. to access Demat Account online.
  • Once you become a Demat account holder, you would be required to pay an annual maintenance fee for the maintenance of your Account. Along with that, you would be charged a transaction fee for conducting transactions via the Demat Account. Also, in case you want to convert your shares into an electronic form, you will be charged a separate fee for dematerialisation of the shares.

Eligibility Criteria to open a Demat account

You can open a Demat account if you fulfil the eligibility criteria as mentioned below:

  • Any residential or non-residential Indian can open a Demat account through a depository participant.
  • A Demat account can also be opened in the name of a minor, provided a legal guardian monitors it.
  • Demat accounts can also be opened jointly with a maximum of 3 account holders, including the main account holder.

Documents required to open a Demat account

Before providing the required documents, you should always ensure that these documents are valid on the date of submission. These are the essential list of documents that you require to open a Demat account.

  • Proof of Income: ITR acknowledgement slip submitted to Income Tax Department, Salary Slip or Form 16, statement of Demat account holdings with eligible depository participant, latest bank statement of previous 6 months, documents confirming ownership of assets with self-attestation.
  • Proof of Identity: PAN Card, Aadhaar card, Voter ID card, driving license.Passport, identity card issued by Central/state government, public financial institutions, bar council and other professional bodies etc.
  • Proof of Address: Passport, Voter’s Identity Card, Ration Card, driving license, utility bills such as telephone/electricity bill, bank passbook etc.

Demat Account Charges

Although you can open a free Demat account, these are some of the charges that you need to pay for your Demat Account.

  • Annual Maintenance: While every depository participant including banks levies yearly maintenance charges for a Demat account, however, as per the guidelines of SEBI, no annual maintenance charge will be applicable for debt securities of up to ₹ 1 Lakh, while a maximum of ₹ 100 can be levied on holdings of ₹ 1 Lakh to ₹ 2 Lakh.
  • Custodian Fees: .These are one-time fees charged on an annual basis that is directly paid to the depository (NSDL or CDSL) by the company.
  • Demat and Remat charges: Along with that, expenses are also levied as a percentage of the total value of shares purchased or sold, to cover all digitisation or physical print costs of securities.
  • Other charges: You would also be required to pay specific costs such as credit charges, applicable taxes and CESS, rejected instruction charges, etc.

FAQs

Is Demat Account safe?

Yes, a Demat account is safe as the depository is responsible for managing the financial portfolio of investors. Also, a Demat account prevents the risk of damage, misplacement, forgery or theft of your shares.

Is opening a Demat account free?

No, while opening a Demat account is free, every depository participant levies various charges such as annual maintenance charges, custodian fees, Demat and remat charges and more.

Is it possible to withdraw funds from your Demat Account?

No, a Demat account holds your security/shares in an electronic form. While you can avail loan against your Demat accounts, you cannot withdraw any cash/funds.

Should I open a Demat account?

A Demat account eliminates the need for holding physical shares and thus promotes seamless tracking and monitoring of holdings during online trading. Along with that, you can avail various benefits such as freezing of your Account, access to your Demat Account anywhere and many more.

Which is the best bank to open a Demat account?

You can open a Demat account through depository participants, including any bank or intermediary. Some of the banks in which you can open a Demat account are ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank and SBI.


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