Trading in the stock market is one of the means for growing your wealth. To start trading, you need to have a Demat account along with an online trading account. Let us see what a Demat account is and how it can help you:
What is a Demat account?
‘Demat’ is an abbreviation for ‘dematerialization’. Dematerialization means converting a physical share to digital form. So essentially a Demat account eliminates the need to hold your shares in physical form. It is a virtual, electronic place where all your shares are stored.
Types of Demat accounts
There are mainly three types of Demat accounts –
- Regular Demat Account– This is used for investors who are Indian Citizens and are residing in India. These accounts can be opened through any stockbroker associated with the depositories in India such as the National Securities Depository Ltd (NSDL) and the Central Depository Services India Ltd (CDSL).
- Repatriable Demat Account –This is an account for Non-Residential Indians(NRI) which allows them to invest in Indian markets. They can transfer the securities outside of India, along with funds, as a Repatriable Demat Account is linked to an NRE (non-resident external) account.
- Non-repatriable account – This account is also for Non-Residential Indians(NRI), however, it does not allow investors to repatriate the securities or the funds as it is linked to NRO (non-resident ordinary) account.
How to Open a Demat account?
To open a Demat account, you need to reach out to a stockbroker. Most of them have an online process to open your account which you can complete right from your home. You just need to provide your basic details, upload documents related to your proof of address and proof of identity, and sign the form digitally using Aadhar linked mobile number. The process is simple and paperless and can be completed in less than 10-15 minutes.
Documents required for opening a Demat account
You need regular KYC documents such as Aadhaar card, PAN card, along with income proof and passport size photographs to open a Demat account. If you are a corporate body or an HuF, you will require additional documents related to your legal identity.
Benefits of Demat account
A Demat account offers several benefits such as the elimination of physical paper-based securities and a streamlined trading process. It also facilitates quick and easy transfer of shares and securities electronically while eliminating all the risks associated with the transfer of physical securities. There is increased transparency and it helps traders track and maintain their shares in one place.
How does a Demat account work?
A Demat account stores all the shares you buy in the stock market. Along with a Demat account, you also get a trading account liked it. When you place a ‘buy’ request from your trading account, the request is forwarded by your stockbroker (DP) to the exchange. The exchange then finds the seller who wants to sell the same quantity of shares as requested by you and debits these shares from the seller’s Demat account and credits it to your Demat account via your stock broker.
What are Demat account charges?
Demat account charges vary from one broker to another. Some brokers provide a free Demat account, while some may charge an annual subscription fee. Note that there will be an Annual Maintenance Charge (AMC) associated that you will need to pay yearly. If you choose the Demat account services of a discount broker, you can also avail of affordable subscription packs for trading along with a flat brokerage rate per trade.
Thus, opening a Demat account is the initiation into the world of online trading, and with a trading account linked to it, you can get started with trading online and make the most of market opportunities.