A Demat account is a facility for holding your shares and securities in an online and electronic format. If you want to trade securities online, you will be required to open a Demat account with a Depository Participant (DP).
As an investor in the older days, you would be required to buy shares of a company in the form of paper certificates, and keep it safe with you until you decide to sell them down the line. However, nowadays with the advent of electronic trading, the whole process of buying and selling shares has become online and so has the storage of your shares in a depository. The depository is handled by the National Securities Depository Limited, and your account in these depositories is known as a dematerialized account, or more widely called a ‘Demat account’.
In this article, we shall cover what a Demat account is, how you open them online, and the charges required to open a Demat account online.
What is a Demat account exactly?
A Demat account is a facility for holding your shares and securities in an online and electronic format. When you hold shares for longer than a day, your shares are bought and held in this Demat account registered with your details, facilitating easier trade for the users. You don’t have to stand in a crowded stock exchange and scream for a jobber in the exchange to provide you the shares anymore. Your Demat account will hold all your investments in one place, whether it’s a company share, an ETF share, a mutual fund, or government security.
If you want to trade securities online, you will be required to open a Demat account with a Depository Participant (DP).
When you buy shares through your Demat account, it’ll be paid on the T+2 day, i.e. two business days post the transaction date. On the other hand, when you sell your shares through your Demat account, it’ll be debited on the T+1 day, i.e. one business day post the transaction date.
What are the documents required to open a Demat account?
Fortunately, you do not require a stream of paperwork to open a Demat account. This ease of process is what allowed me to open a Demat account as an 18-year-old student during my Class XII boards without any major difficulties. The only documents that are required to be submitted are:-
- Copy of your PAN card
- Canceled Cheque of your bank account
- 2 passport size photographs
- Proof of address: This can be your Voter ID, Aadhaar card, Driver’s license or Passport.
If you are keen to trade on derivatives (i.e. futures and options) or/and currency or/and commodities (like crude oil, gold, etc), you are also required to provide proof of your recent earnings i.e. a copy of your bank statement over the past six months.
How to open a Demat account online?
As mentioned earlier, opening a Demat account online is a very simple and sophisticated process. The step-by-step guide of opening a Demat account can be summed up as follows:-
Step 1: Select a Depository Participant (DP)
The first step to opening a Demat account will be to select a depository participant (DP) as mentioned earlier. DP services are offered by banks and independent stockbrokers in India. You can choose a DP with a bank for added convenience while transferring funds, or with a stockbroking company if it provides better services. Go for a service provider where the features are in line with your needs and requirements.
Step 2: Submit the opening form for your Demat account
Visit the website of the depository participant of your choice and fill out the opening form for the Demat account.
Step 3: Complete the KYC Norms
Post filling the opening form of the Demat account Once, you will be required to complete the KYC process i.e. ‘Know Your Customer’. As part of this process, you will be required to submit scanned copies of KYC documents that were mentioned before, such as your Aadhaar card, PAN card, bank statements, and canceled cheque.
Step 4: Go through the IPV process
Once you have submitted the opening form of your Demat account along with the fulfillment of the KYC norms, you will be required to go through the ‘In Person Verification’ (IPV) process. This is a mandatory exercise that is carried out for the purpose of verifying your documents’ authenticity. You can use the webcam of your laptop or the camera of your mobile phone to complete this process online.
Upon completion, you will be signing the terms and conditions with your depository participant.
Step 5: Get Your BO ID Number
Once your entire application is approved, you will be given a BO ID, i.e. a Beneficial Owner Identification Number, a unique number used to access your Demat account.
What are the charges associated with a Demat account?
The charges associated with a Demat account typically include transaction charges for buying or selling shares, dematerialization, and dematerialization of share certificates, postal charges, charges for conversion of mutual fund units, and postal charges. Apart from these, there are also long-term charges like the annual maintenance charges, safety, and custodian charges.
A Demat account is a mandatory requirement for anyone willing to get into the field of investments and trading. Today, the process of getting a Demat account has become much simpler and allows most new investors the opportunity to get their hands into trading and investing with a reliable Demat account to store their shares securely online.