What Is Demat Account And 7 Things You Should Know Before Applying

What Is Demat Account

The Securities and Exchange Board of India (SEBI) issued amended Obligations and Disclosure rules for the dematerialization of securities on June 8, 2018.

According to the official notification, companies are only permitted to process securities transfer requests if they are held in digital form with a stockbroker/depository participant, except in the case of transmission or transposition of securities.

What Is Demat Account
What Is Demat Account And 7 Things You Should Know Before Applying

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The purpose of this article is to explain what a Demat account is and reveal to you the other 7 Most Important Things You Should Know Before Applying For A the Account, including the benefit of having a Demat account.

I’m sure that’s why you’ve shown up; why don’t you grab some popcorn and join us, as i walk you through this.

1. What is a Demat account? 

A dematerialized account, also known as a Demat account, is an online repository where you can store your securities. To invest in financial securities such as stocks, equity, exchange-traded funds, government securities, IPO shares, and so on, you must have a Demat account in India.

A Depository Participant (DP) is an authority that provides Demat services to investors on behalf of SEBI-authorized depository organizations. These DPs can be registered with either one or both of the depositories. Depository Participant (DP) – the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL) – are the two depositories in India (CDSL).

2. Requirement To Start Trading Online In India

A Demat account, a trading account, and a bank savings account are all necessary for investing in the Indian stock market. The online trading system can be accessed by using all three accounts at the same time.

You can use your trading account to buy or sell securities on the stock market. The money in your savings account will be used if you place a buy order in your trading account. If you decide to sell, you’ll get the money deposited into your savings account.

3. Types Of Demat Accounts For India Investors

There are three different types of Demat accountsOpens in a new tab., which are as follows:

  1. Regular Demat accounts for Indian residents
  2. Repatriable Demat account for NRIs,
  3. The non-repatriable Demat account, also for NRIs.

A non-repatriable Demat account does not allow funds to be transferred abroad, which means You will not be able to transfer any of your earnings from this account outside of India. whereas a repatriable Demat account does allow funds to be transferred abroad.

4. Demat Account Opening

To begin, go to your chosen DP and fill out the Demat account opening online form. Copies of the PAN card, ID proof, and address proof must be submitted with the online form. If you’re opening a Demat cum trading account, you’ll also need to provide an income statement.

Carry original documents for a quick verification process, as they will be required to be shown to a DP authorized official during the verification process.

Sign the contract, which outlines your rights, responsibilities, and fees. You will receive your unique account number, known as Beneficial Owner ID, shortly after the successful process. To avoid any unauthorized transactions, keep your login credentials safe.

5. Demat Account Charges

SEBI has eliminated account opening charges for Basic Services Demat Accounts in the interest of investors (BSDA). Other Demat fees, on the other hand, include:

  • The type of Demat account and services you want determine the annual maintenance fees.
  • On the debit transaction, transaction fees will be charged.
  • If you want to convert your paper-based shares to dematerialized form, or vice versa, you’ll have to pay dematerialization/rematerialization fees.
  • If you use Demat holdings for margin trading, you will have to pay a pledging fee.
  • If the company has not paid in advance, the custodian charges will be applied.
  • If you want to change your DP, you must pay a Delivery Instruction Slip (DIS) fee.
  • Update minimal charges in the Consolidated Account Statement (CAS).

6. How To Keep Demat Account Safe And Secured?

It’s a crucial service for keeping your Demat holdings safe while you’re away or actively trading and the steps below would be of help;

  • Examine your Demat account statement on a regular basis for any discrepancies and ensure that all recorded transactions were made by you alone.
  • Check the number of securities traded to make sure it’s the same as the trade you just completed.
  • The majority of securities are credited to your Demat account within T+2 days (Transaction date+2 days). If there is a delay, you should contact your broker.
  • You can use the facility of freezing your Demat account whenever you are not trading to ensure that no debits are made from your Demat account.
  • All of your corporate benefits, such as bonuses, dividends, interest, right issue, and so on, will be available in your Demat account. Make sure to issue a report if it is otherwise.
  • Do not give the broker your Debit Instructions Slip (DIS). EASIEST, the depository’s online transfer service is the best way to avoid fraud.

7. Advantages of Opening Demat Account

  1. Apply for an IPO account: With a Demat Account, you can apply for an IPO and reap the benefits of the stock’s subsequent rise in value.
  2. Able to be done from any location: You’ll have safe access to your account from any computer or mobile device.
  3. Reduced Risks: Dealing with physical shares exposes you to a significant risk, which cant be said since it has to do with a digital asset.
  4. Loan facility: Through the securities in your Demat account, you can apply for a variety of bank loans. These securities can be used as collateral to secure a loan from your bank.
  5. No Loss: If all of the documents are on paper, the chances of them being misplaced are higher. As a result, putting our stocks in a Demat account is thought to be a better and safer option.
  6. Easy to Hold: When trading, the number of physical documents you’d have to deal with can be overwhelming. Keeping track of all the records would be a time-consuming task. Another responsibility in the bag is keeping track of their performance. However, once you switch to Demat accounts, all of your efforts will be saved and kept safe.

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8. Offers Included In Demat Services 

Depositories offer the following services with the Demat account:

  1. A safe and convenient online storage to hold securities with the facility of immediate transfer.
  2. The low-cost investing process with reduced transaction cost and minimal documentation requirements.
  3. No risks of faulty delivery, delays, fake securities, thefts, etc.
  4. It allows trading even one share, thus eliminating the odd-lot issue.
  5. Hold all your investments in different market segments in a single account.
  6. Nomination facility that supports the transmission of securities.
  7. Dematerialization facility – change paper-based shares into electronic format and Rematerialisation facility – change the electronic form of shares into paper format.
  8. Quick update of changed address with all companies in which you hold securities. You just need to correspond with your DP instead of each of the companies separately.
  9. Automatic receiving of bonus, right issues, dividends, and all other benefits directly into the Demat account.

Conclusion On Demat Account

As a result of receiving a thorough understanding of what a Demat account is and the seven other things you should know before opening one, you can now determine whether or not you require one.

If this guide was useful and informative, please do well to share it and leave a comment in the section below. Thanks.

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