As per law, Demat Account is a must to trade in financial securities through a stock exchange. Demat account is used to hold shares and other financial securities in electronic format. Demat stands for Dematerialised.
All financial securities like shares, e-gold, IPOs, government securities, exchange-traded funds, bonds and mutual funds traded in the stock exchanges are kept in the owner’s Demat account in electronic format.
Dematerialisation eliminates the need for the investors to hold physical share certificates.
Demat account is like a bank saving account which can show you credits, debits, balances, transaction history and other relevant details in relation to buying and selling of financial securities.
Every Demat account has a unique 16 digit identification number.
If you want to trade in stocks, then you need to have a trading, demat and bank account and all three should be linked befor you decide buying and selling stocks.
Demat vs. Trading Account: The Difference
Many investors and traders are confused with the difference between a demat and trading account.
A demat account is required just to hold the securities in electronic format. To buy and sell securities, you need to place orders and instructions to your broker, who will execute the transaction on your behalf. For buying and selling securities through your broker, you need to have a trading account.
From your trading account, you place buy or sell orders through a stock broker. After placing your order in a trading platform, its processed and sent to the stock exchange.
After processing at the stock exchange level, shares are credited or debited into your Demat account. All these take a fraction of a second to execute. However, shares bought and sold will reflect in your Demat Account only after the clearing and settlement process gets over.
Here are the most important benefits of a demat account;
- No paperwork required to register transactions
- Theft, delay and forging of share certificates eliminated due to storage of certificates in electronic format with a depository
- Bonus, stock split and other corporate actions are automatically credited to your demat account.
- Transactions in demat accounts can be monitored from anywhere with an internet connection. Notification of debit and credit to the Demat account are done through electronic alerts.
In India you can open a demat account with a depository.
Who are depository
In India we have two depositories: NSDL (National Depository of Securities Ltd) and CDSL (Central Depository of Securities Ltd). Stock brokers work like depository participants to facilitate these services.
An investor who wants to buy and sell financial securities online needs to open a Demat Account through depository participants.
Depository participants are intermediaries registered with SEBI.
How to open a Demat Account
Opening a Demat Account is very easy. You can do it online or offline.
Here are the steps you can follow to open a Demat Account in India;
- Compare the services and benefits offered by different Depository Participants to select the one that best suits your requirements.
- Fill up the application form online. You will be asked to upload a soft copy of your PAN card, Aadhaar, bank statements and signature specimen.
- At the end you will be e-verified before submitting the form.
- Once the documents are verified, you will get details of your demat, trading and others in your email.
Below is a list of accepted documentation that can serve as:
Proof of identity
- passport
- driver’s license
- voter’s ID
- Income Tax returns
- Verified copy of electricity/phone bill
- PAN card
- Bank attestation
- A photo ID card issued by a central or state government body
- ICAI, ICWAI, ICSI, bar council etc, issued identification card with photograph
Proof of address
- Voter’s ID
- Ration card
- Passport
- Driving license
- Bank passbook/ bank statement
- Leave and license agreement/ agreement for sale,
- Verified copies of residential telephone/ electricity bills
- Self-declaration by High Court/Supreme Court judges
- A photo ID card with address issued by a central or state government body
- ICAI, ICWAI, ICSI, bar council etc., issued identification card with photographs and address.
Remember, PAN is a must for all applicants to open a Demat account except those who are specifically exempt from obtaining PAN.
Non resident Indians can not open a regular Demat Account. They can either go for a Repatriable or Non-repatriable Demat account. Repatriable Demat account allows the international transfer of funds.
Remember, before choosing a stock broker, you must know the charges they are going to charge for each transaction you carry with them. Charges may vary depending on their types and nature of services they offer. Based on your requirement you can choose between a discount broker or full service broker.
Can you have multiple demat account
Yes, an individual can have multiple Demat Account in his/her name with different depository participants. At present, we do not have any restriction on the number of Demat Accounts that an individual can hold.
However you can not hold more than one demat account with the same depository participants or broker.
