A Demat or ‘digitalized’ account holds shares in electronic form, thus saving you the trouble of keeping the shares in paper form. Having a Demat account is now a condition for investing in the stock market.
You can open Demat accounts in banks, financial institutions and stockbroking houses. In such cases, the stockbroking houses act as intermediaries between depositories – CDSL or NSDL and investors as depository participants. To open a Demat account, you must first submit an application to a depository participant and submit the necessary documents with it. Once you have a Demat account in your name, you can open a trading account with the broker of your choice.
The shares you buy and sell are reflected in your Demat account. Any previously held physical shares can also be digitized and transferred to the account.
Depository participants provide you with an account statement at regular intervals which shows the balance of shares in your Demat account and transactions over a period of time.
The following steps can help you to open a Demat account:
First of all, you have to search for companies providing DP service. You have two options. Either you choose a bank / financial institution or stockbroker who can also offer you depository participation services. The factors that help you in the selection are the charge and location benefits. The fee charged for submitting participant services varies across industries. Although rates vary, charges are generally classified under the following mains:
Account opening fee
Annual maintenance fee
In addition to the above depositors, service charges also apply. A bank or any other DP may sometimes waive the initial account opening fee. It is good to choose a bank where you have been keeping your savings account for a long time, but most of the paperwork will be easy and the documentation will not take long, as you are already familiar with the banker.
Documents required to open a Demat account:
Here is a set of required documents to be provided to the agent while opening the account:
- Correct account opening form and passport size photograph;
- A copy of PAN card as proof of identity;
- Personal check/copy of bank passbook
- A copy of passport/voter ID/ration card as proof of address
The signing of the DP-Investor Agreement.
After depositing the complete set of documents, the agent will complete other formalities with the depositor and facilitate the opening of the account. You will be given a unique account number (BO ID – Identification of Beneficiary Owner), which will serve as the reference number for all subsequent transactions. Next, you have to collect the delivery instruction (DI) slip from the DP. You will need to complete the DI slip on each distribution (share sale) and send it to the DP. The DI slip instructs the DP to debit your account and deposit it in the broker’s account with the specified stock.
It is very important that the instruction of the DP reach the DP on the next day of salefailing which the securities won’t reach the broker and the exchange. This may result in a security auction. For example, the exchange is only able to acquire these shares at a higher price, and then you will have to bear the resulting loss as an investor. If you have a Demat account with your stock broker, you can avoid this awkward process of sending a DI to supply your sold stock and giving it standing instructions (POA-Power of Attorney).
Once you prepare the documents restricting a DPK, opening a Best DematAccount in India is a very easy process.