Demat Account Concept and Processes

Last Updated: 16 Oct 2024

We’ve all heard of Demat Accounts. But, what are they and how can you use them? If you are not very finance-savvy, this article will help.

What is a Demat Account?

Demat accounts are trading accounts used for buying or selling shares and otherwise participating in the commodity markets. It is an electronic medium through which you hold all of your investments, such as bonds, shares, and mutual funds in one place, while also providing a secure and convenient platform to keep track.

Earlier, trading was done in a physical form through share certificates. Physical shares are now redundant. Demat is short for dematerialized, which translates to dematerialize physical shares. Thus, a Demat account is simply an account where your shares are stored in digital form.

The Process of Opening a Demat Account

This section is a quick rundown of the process of opening a Demat account in India. More like, the Demat process!

Step 1: Pick a DP
To Open Demat Account, you first need to choose a Depository Participant (DP) either under CDSL or NSDL. CDSL and NDSL provide a list of DPs with whom an investor can open a Demat account. In India, banks, stockbrokers, and online investment platforms offer DP services. The choice of a DP depends on multiple factors like the brokerage charges, annual charges, and the leverage provided.

A depository is a centralized storage facility for all electronic securities. The Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL) are two such depositories in India. Some well-known DP partners in India include IIFL.

Step 2: Fulfil account opening and KYC Requirements
Once you pick the DP of your choice, you can visit their website and fill out an online Demat account opening form to open a Demat account.

• PAN Card
• Aadhar Card
• Residence Proof
• Bank Statement
• Proof of Income
• Passport-size photographs

You are required to submit copies and present the original documents for the next step!

Step 3: Verification
Depending on your DP, you may be asked to be present in person for verification.

Step 4: Sign the Agreement
Once your verification is complete, you’d have to sign an agreement with your DP. This agreement will contain all the rules, regulations, duties, and rights that you as well as your DP are meant to abide by.

Step 5: Get Your Unique ID Number
Upon approval of your application, you will be provided with a unique Beneficial Owner Identification Number (BO ID). This ID, along with other details, will enable you to access your Demat Account online. You will be given instruction slips by the DP, which will be used for depository services like transfer, purchase, etc.

That’s all there is to the Demat account process.

Features of a Demat Account

The features and benefits of opening a Demat account are plenty. Let’s go through a few:

• Easy transfer of shares
• Quick dematerialization & rematerialization of securities: You can convert physical share certificates into electronic form and vice versa.
• Freezing Demat accounts: Demat accounts can be frozen for a certain period if required.
• Collateral to avail loan: Several securities are used as collateral to avail loans by the account holders.
• Multiple accessing options: Demat accounts can be accessed using multiple mediums.
• Convenient and speedy E-Facility: NSDL allows users to send instruction slips electronically instead of physically submitting the slip to the DP.
• Corporate benefits & actions: If companies offer dividends, refunds, or interest to their shareholders, these benefits are automatically available to the Demat account holders.

Types of Demat Accounts

There are mainly three types of Demat Accounts available for investors to choose from:

1. Regular Demat Account: This is for Indian citizens who reside in the country.
2. Repatriable Demat Account: This type of account is for non-resident Indians (NRIs), enabled with international money transfers. This type of Demat Account needs to be linked to an NRE bank account.
3. Non-Repatriable Demat Account: Again, for NRIs, but with this type of Demat Account, international fund transfers are not possible. This Demat account has to be linked to an NRO bank account.

Final word

Demat Accounts offer a bunch of benefits such as safety, ease of transaction, and faster settlement of trades. The procedure to open a Demat Account as laid out is fairly quick and easy. Looking for a safe avenue to invest with reasonable ease? Begin with opening your Demat account with IIFL Capital Services and start your investment journey with their trading app.