What is a demat account?
A demat account helps investors hold shares and securities in an electronic format. This kind of account is also called a dematerialised account. It also helps to keep proper track of all the investments an individual makes in shares, exchange-traded funds, bonds, and mutual funds in one place.
Importance of a demat account
- Digitally secure way of holding shares and securities
- Eliminates theft, forgery, loss, and damage to the physical certificates
- Quick transfer of shares
- It eliminates unnecessary paperwork.
- Online opening of Demat account is simpler and faster.
- It eases and streamlines the process of share trading.
What is Dematerialization (demat)?
Dematerialization is the process of converting the physical share certificates into electronic form, making it easy to maintain and access them from anywhere. Earlier, shares were held in the form of physical certificates, which were cumbersome to store and transfer. The advent of a demat account made it a lot easier to handle shares. An investor who wants to convert his physical shares into digital form needs to open a demat account with a depository participant (DP).
Features of Demat account
A Demat account is an important tool for safekeeping shares. Demat accounts eases the process of share trading and makes it quicker as well. Initially, shares were held in a physical form via share certificates. That made the entire procedure tedious and time consuming. To eliminate such limitations, the National Securities Depository Limited (NSDL) was established in 1996. They brought the concept of Demat accounts that enabled electronic storage of shares and securities of companies. In India, if you want to invest in the stock market, it is compulsory to open a Demat account.
Benefits of a demat account
- Eliminates the risk of paper-based share certificates: Before the advent of the demat account, shares existed as physical paper certificates. If you held shares of a company, you had to safe-keep a dozen of paper certificates. These were vulnerable to tampering, theft, loss, and forgery. Moreover, the transfer of shares involved lengthy paperwork that was prone to error and delays. With a demat account, you can store all these shares electronically in a safe and secure digital repository
- Convenient share storage and transfer: This allows you to store any number of shares, so you can trade in volumes and monitor the details of all the shares you hold in a demat account. It further facilitates the swift transfer of shares while trading online
- Bonus stock-splits get automatically updated: If an initiative of the company whose shares you are holding brings in a change to its stocks such as bonus issue, stock split, etc., it will be updated automatically in your demat account
- Stores various investments: Besides the shares, the demat account can also hold multiple assets, like bonds, mutual funds, exchange traded funds, government securities, etc
- Easy access online: You can access your demat account anytime, anywhere, through your smartphone or laptop
- Nomination: A demat account also provides the nomination facility as per the process described by the depository. In case of the investor’s demise, the appointed nominee will receive the shareholding in the demat account
How does a Demat Account work?
Demat accounts are primarily used to hold the bought shares.
- In case you want to buy or sell a specific share, you need to login to your Demat and trading account, which is also linked to your bank account.
- When a ‘buy’, or ‘sell’ request is placed in a trading account, the Depository Participant, forwards this to the stock exchange on an immediate basis.
- Suppose the order is to ‘buy’, the stock exchange then searches a seller who wants to sell shares and if price matches, it is sent to clearance houses to debit those many shares from the seller’s Demat Account and credit them to the buyer’s Demat Account.
Please note, the buyer and the seller may hold Demat Accounts with Depository Participants belonging to different depositories.
Types of Demat account
In India, there are three major types of Demat Accounts offered by Depository Participants.
- Regular Demat Accounts – These are meant for Indian residents. If you are dealing with investment and equity trading, a regular Demat Account is the best option for you. Here the charges are dependent on the type subscribed, volume that is there in the account and the various terms and conditions set by the depository and the DP. (Depository Participant)
- Repatriable Demat Account – This kind of Demat Account is good for NRIs, who wishes to invest in the Indian Stock Market quickly from any part of the world. Such an account is useful for NRIs as with the help of such an account, they can transfer their funds to various foreign countries. But NRIs looking to hold a Repatriable Demat Account need to possess an associated NRE bank account.
- Non-repatriable Demat Account – This is similar to a repatriable Demat Account and is also for NRIs. However, this account doesn’t allow you to transfer funds abroad. This requires you to link it to a Non-resident Ordinary (NRO) bank account.
Documents required for Demat account opening
To open a Demat Account without any hassle, you should have some essential documents. Listed below are the documents that’s required to open a Demat account.
- Identity proof with a photo. Aadhar card, PAN card, Driving License etc. are some of them.
- Residence proof. Registered lease agreements, passports, landline telephone bills, electricity bills, copy insurance, apartment maintenance bills, gas bills etc.
- Proof of bank account – Bank’s account statement or passbook (shouldn’t be more than three months old)
- Income Proof – Taxes or pay slips. It is compulsory for the currency and derivatives segment.
How to open a demat account
To open a demat account, you start with reaching out to a stockbroker, like Bajaj Financial Securities Limited (BFSL). You need to complete an online account opening form, which is 100% paperless and takes less than 15 minutes. Below are the steps to open a demat and trading account with BFSL:
- Open the account opening form
- Enter your details like name, email id, phone number, address, etc., and your PAN number
- Add your bank details
- Upload the necessary KYC documents for address and identity proof
- Perform an in-person verification by recording a short clip of yourself
- E-sign the form through Aadhar linked mobile number
- After applying, you will receive a confirmation regarding your account opening along with your login credentials.
How to use a demat account?
Using a demat account is simple. Your demat account gets linked with your open trading account online, which in turn gets linked with your bank account. To begin trading, you need to transfer funds from your bank to the trading account.
After adding funds, you can place an order to buy shares using your trading account. Once the order gets executed, the shares will get transferred to your demat account by the end of T+two days, where T is the day the order got executed. Since both demat and trading account are closely integrated, all these actions happen swiftly and seamlessly. Similarly, you can sell a share in your demat account by placing a sell order in the stock exchange using your trading account.
Why open a Demat account with BFSL
- First and foremost, Demat account opening is free of cost with Bajaj Financial Securities Limited through the Freedom Subscription Pack.
- Process is 100% online
- BFSL offers low brokerage rates with multiple and unique offerings.
- You can securely access your account on your mobile or desktop from anywhere in the world.
Demat account FAQs
What are the charges for the Demat account?
You can open a Demat and Trading account with Bajaj Financial Securities Limited free of cost. Click here to know the details of the packs.
How many Demat accounts can you have?
You can open as many Demat accounts as you want, provided they are with different Depository Participants.
Who is eligible to open a Demat account?
If you are an Indian and above 18 years of age, you can open a Demat account with BFSL. It is compulsory to have a PAN card, bank account and the necessary documents for address and identity proof.
How to open a Demat account?
In order to open a Demat account with BFSL, you need to fill out an online form with your details and get online verification on your KYC details.
How much time does it take to open a Demat account?
Due to the digitalization, it takes 10- 15 minutes to open a Demat account once the application is submitted and there is no error in the submitted application.
I have submitted my application. What happens next?
Once you’ve submitted your application, your personal details and documents will be verified with the original ones. Once the verification is successful, the account number gets issued.
Can I link Demat & trading account?
Yes, you can link your Demat and trading account. Also, multiple Demat accounts can be linked with a single trading account. Usually, it is recommended to link your Demat and trading accounts. This helps you avoid providing your Demat account details every time you make a transaction.
Is it mandatory to link a trading account to a Demat account?
You may have a trading account without a Demat account. With only a trading account, you can trade in futures and options, for which you don’t have to take the delivery of shares.
Is a Demat account safe?
Yes, demat accounts are secure. Either of the depositories governs every demat account - National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), and they send alert messages, emails, and notifications for transactions performed.
Yet, it is advisable to be vigilant of any security transactions in your demat account. It is a safe method to hold your securities as it prevents the risk of tampering, loss of physical shares, or forgery.
Can I open two Demat accounts?
Yes, it is legally possible to open more than one demat account per person. You can have multiple demat accounts in your name. But an investor can open only one demat account with a depository participant (DP) or a broker. If you intend to have another demat account, you can open a demat account with another broker or a DP. An individual cannot have multiple demat accounts with the same stockbroker.
Why is a Demat account needed?
A demat account is needed to hold the securities (shares, bonds, mutual funds, etc.) in an electronic format. A demat account is a prerequisite for equity delivery trading in India. A demat account is also needed while applying for IPO (initial public offering) as the allotted shares get credited to the demat account.
