What is Demat Account ?
A demat account is an account to hold financial securities (equity or debt) in electronic form.
It is also called as De-materialized account.
In India, demat accounts are maintained by two depository organizations, NSDL ( National Securities Depository Limited ) and CDSL ( Central Depository Services Limited ).
In India, demat accounts are maintained by two depository organizations, NSDL ( National Securities Depository Limited ) and CDSL ( Central Depository Services Limited ).
A depository participant, such as a bank, acts as an intermediary between the investor and the depository.
The demat account number is quoted for all transactions to enable electronic settlements of trades to take place. Access to the de-materialized ( demat ) account requires an internet password and a transaction password.
Transfers or purchases of securities can then be initiated.
The purchases and sales of securities on the de-materialized account are automatically made once transactions are confirmed and completed.
The demat account number is quoted for all transactions to enable electronic settlements of trades to take place. Access to the de-materialized ( demat ) account requires an internet password and a transaction password.
Transfers or purchases of securities can then be initiated.
The purchases and sales of securities on the de-materialized account are automatically made once transactions are confirmed and completed.
Key points
- A de-materialized ( demat ) account is an electronic account that holds all your securities i.e stocks, shares, bonds etc in an electronic form.
- In order to open an account, you need to go through a depository such as CDSL or NSDL.
- There’s no need for you to hold on to physical share certificates.
How many types of Demat Account ?
- Regular Demat Account
- Repatriable Demat Account
- Non Repatriable Demat Account
Required documents for Demat Account open ?
Opening a demat account requires providing documents that fulfill the requirements of KYC.
KYC stands for Know Your Customer.
A contract with a stockbroker does not have to be signed. Generally the documents are :
- PAN ( Permanent account number )
- Bank statement / Income tax return or salary slip
- Bank crossed cheque
- Aadhar card
Demat account charges :
There are multiple sorts of account charges you’re likely to come across - both during the time when you hunt for your preferred broker and when you’ve completed your registration process. Primarily, these charges can be classified into 3 types:
- Account Opening Fees
- Annual Maintenance Fee
- Transaction Fees
Account Opening Fees :
Account Opening Fees is the fees your broker will collect for the whole process of registering your demat account. Not all brokers charge this fee, so you’re likely to come across a few where you would not be paying any such fees. Some online brokers might charge a nominal account opening fee to trade on different segments.
Annual Maintenance Fee :
Annual Maintenance Fee is usually a prepaid amount that your broker collects to keep your account active throughout the year. While these charges are usually nominal (Rs 300 - 800 for the year), many brokers in the industry have now begun to charge zero fees here as well. The race to provide traders with the best rates and services has led to some intense competition in the brokerage industry landscape.
Transaction Fees :
Transaction Fees refer to the charges your broker will levy for moving (debiting and crediting) your stocks or other securities to and from your de-materialized account. This can vary wildly across brokers depending on their target audience.
The benefits of demat account are as follows :
- Easy and convenient way to hold securities.
- Safer than paper-shares.
- Reduced paperwork for transfer of securities.
- Reduced transaction cost.
- Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc.
- A single demat account can hold investments in both equity and debt instruments.
- Traders can work from anywhere.
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Disadvantages :
- Trading in securities may become uncontrolled in case of de-materialized securities.
- Agreements are entered at various levels in the process of de-materialization. These may cause worries to the investor desirous of simplicity.
- There is no provision to close a demat account, which is having illiquid shares. The investor cannot close the account and he and his successors have to go on paying the charges to the participant, like annual folio charges, etc.
- After liquidating the holdings, many Indian investors don't close their depository participant account. They are unaware that depository participants charge even on dormant accounts.
