What is a demat account

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What is a demat account

Quote:
Demat refers to a dematerialised account.

Just as you have to open an account with a bank if you want to save
your money, make cheque payments etc, you need to open a demat account
if you want to buy or sell stocks.

So it is just like a bank account where actual money is replaced by
shares.

You have to approach the DPs (remember, they are like bank branches),
to open your demat account.

Let's say your portfolio of shares looks like this: 40 of Infosys, 25
of Wipro, 45 of HLL and 100 of ACC.

All these will show in your demat account.

So you don't have to possess any physical certificates showing that
you own these shares. They are all held electronically in your
account.

As you buy and sell the shares, they are adjusted in your account.

Just like a bank passbook or statement, the DP will provide you with
periodic statements of holdings and transactions.

Is a demat account a must?

Nowadays, practically all trades have to be settled in dematerialised
form.

Although the market regulator, the Securities and Exchange Board of
India (SEBI), has allowed trades of upto 500 shares to be settled in
physical form, nobody wants physical shares any more.

So a demat account is a must for trading and investing.

Where do I begin?

Look for a DP to have an account with
Most banks are also DP participants, as are many brokers.

You can choose your very own DP.

To get a list, visit the NSDL and CDSL websites and see who the
registered DPs are.

A broker is separate from a DP. A broker is a member of the stock
exchange, who buys and sells shares on his behalf and on behalf of his
clients.

A DP will just give you an account to hold those shares.

You do not have to take the same DP that your broker takes. You can
choose your own.

But many brokers offer special incentives in the form of lower charges
for opening demat accounts with their DPs.

Get your documents in place
Once you approach your DP, you will be guided through the formalities
of opening an account.

You must fill up an account opening form and sign an agreement with
your DP.

The DP will ask for some documents as proof of your identity and
address.

Check with them what they require. For instance, some may accept a
driver's license, others may not.

Here is a broad list (you won't need all of them though):

• PAN card
• Voter's ID
• Passport
• Ration card
• Driver's license
• Photo credit card
• Employee ID card
• Bank attestation
• IT returns
• Electricity/ Landline phone bill

While they only ask for photocopies of the documents, they will need
the originals for verification.

You will have to submit a passport size photograph on which you sign
across.

How many shares you need to have to open an account
When opening an account with a bank, you need a minimum balance.

Not so with a demat account. A demat account can be opened with no
balance of shares.

And there is no minimum balance to be maintained either. You can have
a zero balance in your account.

What will it cost?
The charges for account opening, annual account maintenance fees and
transaction charges vary between DPs. To get a comparative idea, visit
the websites of NSDL and CDSL.

Can I nominate?
Sure. You can nominate whoever you like by filling up the nomination
details in the account opening form.

This is to enable the nominee to receive the securities after the
death of the holder of the demat account.

Finally?

When you open an account, the DP will allot a unique BO ID (Beneficial
Owner Identification) Number, which you need to quote for all future
transactions.

If you want to sell your shares, you need to place an order with your
broker and give a 'Delivery Instruction' to your DP.

The DP will debit your account with the number of shares sold. You
will receive the payment from your broker.

If you want to buy shares, inform your broker about your Depository
Account Number, so that the shares bought are credited into your
account.

What's the difference between a depository and a depository
participant?

A depository is a place where the stocks of investors are held in
electronic form.

The depository has agents who are called depository participants
(DPs).

Think of it like a bank. The head office where all the technology
rests and details of all accounts held is like the depository. And the
DPs are the branches that cater to individuals.

There are only two depositories in India -- the National Securities
Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL).
There are over a 100 DPs.