How To Open a Demat Account
Equity investing has become a common practice in India as new retail investors are looking to make better profits than other investment avenues and multiply their wealth over time. The Securities and Exchange Board of India, which regulates the Indian securities market, has made tremendous efforts overtime to shift the investing process from physical to digital. Today, it takes a few clicks on the mobile or the laptop to seamlessly buy and sells shares. However, new investors face difficulties reaching the point of investing as they are not well-versed in the investing procedure. One of the most common difficulties is not knowing how to open a Demat account online.
Investing in equity shares requires having a Demat account, and it is a commonly used term in the realm of trading and investing. There has been a dramatic change in savings patterns among Indians, from traditional fixed deposits to new alternatives such as stocks and shares, increasing the number of Demat accounts. Furthermore, it has become increasingly popular to open a Demat account in the recent past. The popularity of these accounts has scaled new heights, with 10.7 million Demat accounts opened by 2021 singularly.
Since a Demat account is mandatory to invest in, it is important to know the steps to open a Demat account online. This article will help you learn everything you need to know about Demat accounts and how to open a Demat account.
What are Demat accounts, and how do they work?
In India, trading used to take place by transferring securities in the form of physical certificates. However, in 1996, the Securities and Exchange Board of India (SEBI) introduced Demat accounts in the country, and it revolutionised investing by making it a digital process. One of the most important factors introduced by SEBI was a Demat account.
'Demat' refers to dematerialisation, a process by which physical securities are converted into electronic format. Therefore, a trader can use a Demat account to hold, transfer, and transact securities without the hassles of dealing with physical securities. As a result, trading has become a safer, quicker and much more efficient method of storing securities and executing trades.
Demat accounts are used for the dematerialisation of shares. It is primarily used for investing in shares and securities in an electronic form that is more accessible with a Demat account. Specifically, these accounts are meant to convert share certificates from physical to electronic format, thereby providing greater accessibility for account holders.
Benefits of Opening a Demat Account With IIFL Securities
IIFL Securities is among India's highest-rated and leading stockbrokers with over 25 years of financial market experience. It is one of the few stockbrokers registered with the National Securities Depository Limited (NSDL) and Central Depositories Services Limited (CDSL), allowing you to choose between the two as your depository institution. Being the most trustworthy stockbroker, IIFL provides the following benefits when you choose to open a Demat account with India Infoline.
- Paperless Process: Opening a Demat account with IIFL is done using an advanced technology-backed online platform, which is quick and completely paper-free. All you have to do is visit the IIFL website or download the IIFL Markets app from the app store and fill out the Demat account opening form, which takes less than 5 minutes.
- User-Friendly Interface: The user interface of the IIFL trading platform and IIFL Markets app is easy to comprehend and use. It has numerous investor-oriented features to offer hassle-free and seamless trading and investing experience. The platform has very low latency, allowing for the trades to be executed instantaneously.
- Cost-effective: Opening a Demat account with IIFL comes with the most cost-effective prices. When you open a Demat account with IIFL, it comes with zero account opening charges and free-of-cost account maintenance charges for the 1st year. Furthermore, a Demat account with IIFL has zero fees per order for ETF & Mutual Funds brokerage along with 0% interest on margin trading funding for 30 days.
- Goodwill: IIFL comes with 25 years of experience and customer trust with over 22 lakh happy customers. IIFL Markets app, which provides comprehensive trading and investing facilities to customers, has over 7 million downloads. Furthermore, IIFL has over 1,10,000 cores under its Asset Under Management which is among the top AUM holders in the financial market.
- Unique Trading Platform: When you open a Demat account with IIFL, you can access various unique features of the IIFL trading platform. With the account, you can track your favourite stocks directly from your home screen and set customised and actionable alerts. The platform also includes livestock charts with over 230+ indicators along with an advanced 20-level market depth.
Essential Documents Required for Opening a Demat Account with IIFL
Reaching the point of making your first investment includes numerous steps that may seem complex to a new investor. The most essential step is to know how to open a Demat account. However, opening a Demat account calls for presenting and submitting some essential documents needed at the time of opening the Demat account. With IIFL, the process of opening a Demat account is easy and quick and requires the following essential documents on the investor’s part:
- Proof of identity with a photo such as your Aadhaar card, PAN card, voter ID card, driving licence, etc.
- Provide evidence of your residence, such as registered lease agreements, driver's licence, passports, landline telephone bills, electricity bills, apartment maintenance bills (if applicable), copy insurance, gas bills, etc.
- Your bank's passbook or account statement will serve as your proof of bank account (must be no more than three months old).
- Your bank's passbook or account statement will serve as your proof of bank account (must be no more than three months old).
Once you have collected all the documents, you can easily open a Demat account with IIFL. These documents make up a vital part of the steps to open a Demat account online. It is better that you have scanned copies of all the documents before you go to IIFL’s website or download the IIFL Markets app to open the Demat account. Furthermore, ensure that the information and pictures in the essential documents are visible before submitting them in the Demat account opening form.
Understanding Depository Participants is the next step in learning how to open a Demat account. In India, the Depository Act of 1996 regulates the establishment and operation of a depository. SEBI is the governing body and regulates the functioning of any depository. NSDL and CDSL are the two major depositories in India.
National Securities Depository Limited (NSDL) is promoted by the National Stock Exchange, Industrial Development Bank of India, and Unit Trust of India. Furthermore, the Central Depository Services Limited (CDSL) is promoted by the Bombay Stock Exchange, State Bank of India, and the Bank of India.
Depositories have multiple benefits, which include:
1.Holding security on an investor’s behalf
A depository acts as a guardian to maintain and safeguard the securities on behalf of the investors. It allows investors to remain stress-free about holding securities themselves and spending time on its maintenance.
2.Ease of transfer
The primary role of a depository is to facilitate the transfer of securities held by an owner. On the execution of a trade, the depository directly transfers the securities from the account of the seller to the buyer. Such electronic transmission improves the speed and efficiency of the transaction and reduces any margin for error.
What is the role of a depository?
Depository services play the following roles in the process of stock market operations.
- Serves as a link: A depository acts as an intermediary. It intimates investors about transfer in ownership, periodic holding of investors, corporate action, and more. Similarly, companies can maintain shareholding data accurately based on the information provided by the depositories.
- Create liquidity in the market: Depositories offer mortgages or loans against securities held by investors, which may be further utilised for the purchase of other securities. The liquidity offered by a depository to its clients is also referred to as margin. Further, depositories also lend the securities to other institutions and businesses and earn revenue from the same.
- Invest on the go: With the introduction of a depository, investors can invest in huge volumes from anywhere in the world. Investors may invest in IPOs and ETFs and trade on a large scale with a depository.
Unique 16-digit Demat Account Number
The Demat account number is a 16-digit numerical code or number that the investors receive at the time of the Demat account opening. The 16-digit Demat account number is unique to every investor and represents their financial identity at the time of trading or making investments in the stock market. The Securities and Exchange Board of India has made it mandatory for every investor to have a 16-digit Demat account number to make it convenient for the stockbrokers and the investors to assess their investment portfolios.
At the time of buying and selling shares or applying to various IPOs, this 16-digit Demat account number is quoted to represent the investor. Because of the Demat account number, the shares bought or sold by investors get credited or debited respectively from their Demat account in T+2 days.
The Demat account number is a combination of the following two elements:
- The DP ID: The depository participant Identification is the number assigned to the financial entities such as banks, brokers, etc., by the depository institutions such as NSDL or CDSL. When an investor opens the Demat account with any of these entities, the first 8 digits of the 16-digit Demat account number is the DP ID representing the Demat account opening institution.
- Customer ID: The next 8 digits of the 16-digit Demat account number are the customer ID that is given to every customer by the stockbroker who opens a Demat account with the institution. These 8 numbers are unique to every investor and can never be the same for two investors.
A Demat account number is a combination of the DP ID and customer ID. The DP ID is a unique code assigned to all the DPs who can be a broking firm, a bank, or a financial institution affiliated with NSDL or CDSL. The initial 8 digits of your Demat account number represent your DP’s ID, and the subsequent 8 digits represent your customer ID. For example, if your Demat account number is IN56732892132810, then IN567328 represents your DP’s ID, and 92132810 represents your customer ID.
Steps for Opening a Demat Account
Step 1 - Fill the Details and Submit the Demat Account Opening Form
- Fill the online form for opening a free demat account with IIFL Securities. Fill in mandatory details like your mobile number and email id in the online form.
Step 2 - Submit Supporting Documents for Opening Demat Account
- Share your PAN Card and Bank details. Enter your accurate PAN number and bank details through which you wish to transact.
Step 3 - Complete E-KYC Process and Receive Demat Account Number
- Get your KYC details verified online. The verification of the your KYC details is done online
Types of Charges Associated With Opening a Demat Account:
Numerous charges are levied by the stockbrokers for their service of opening Demat accounts. Although the title of the charges remains the same, the fee varies depending on the stockbroker. For example, IIFL charges a relatively low fee when compared to other stockbrokers for opening the Demat accounts. Here is a brief explanation of all types of charges you would need to know to understand how to open a Demat account online:
- Account Opening Fee: The account opening fee is a one-time fee charged by the stockbroker at the time of opening the Demat account. The fee is non-recurring and is only charged once at the initial stages.
- Annual Maintenance Charges: Annual Maintenance Charges is a fee charged annually to maintain your Demat account, irrespective of the number of transactions you make every year.
- Dematerialisation of share certificates: Dematerialisation is the process of converting actual share certificates into electronic records, for which they charge a fee.
- Rematerialisation of share certificates: Rematerialisation converts electronic records of shares into physical certificates of ownership. Similar to dematerialisation, a fee is charged for the rematerialisation as well.
- Conversion of mutual fund units: Depository participants typically charge a fee to convert mutual fund units held physically into a dematerialised form. As a general rule of thumb, most depository participants only charge a flat fee for converting mutual fund units.
- Destatementisation: The process of converting mutual fund units from their physical form into a dematerialized electronic form is known as destatementisation.
- Reconversion of mutual fund units into Statement of Account (Restatementisation): Conversion of mutual fund units held in a Demat account into their physical is called "Restatementization", represented by a Statement of Account (SOA), which includes a small fee.
- Redemption: The redemption process involves returning your mutual funds units to the fund house. Most depository participants charge a flat fee per redemption request.
- Postal Charges: Postal charges are levied by depository participants to physically courier documents and statements of account to you.
Why do you need to open a Demat Account?
Once you know how to open a Demat account online, you can go ahead and open the most comprehensive Demat account with IIFL. A Demat account can provide you with the following benefits:
- Secure:The appreciation or decline in the value of an investment is entirely dependent on the market conditions and the investment rationale of the investor, but the security of the investment can be ensured through a Demat account. Shares and bonds in the physical form were susceptible to being lost, stolen or damaged. Demat account guarantees the security of the holding as shares, bonds, mutual funds or other investments are held in an electronic form. If you have a Demat account, you don't have to worry about forged shares, as all of the shares in your account are genuine.
- Convenience: One of the biggest advantages of a Demat account is the speed of the command. Once you place an order, it is executed within seconds without any errors. Similarly, the use of Demat accounts has made the transfer of securities easier. Earlier, it used to take months to transfer securities to an individual, as the securities had to be sent to the company's registrar to approve the transaction. By using a delivery instruction slip or receipt instruction slip, investors can instantly transfer securities through a Demat account.
- Accessibility: Using a Demat account, you can access your securities from anywhere and anytime. The trading platforms allow you autonomy over your investments where you have the authority to access your portfolio and make investments at your convenience. You can trade on the go by using an application or create a system based on your laptop.
- Multiple securities: A Demat account doesn't merely support the equity share market but also holds other electronic financial instruments such as bonds, mutual funds, and debt securities, enabling you to track and monitor all of your investments under a single roof. With a Demat account, you don’t have to worry about the number of shares you intend to buy or sell. Demat accounts do not have such restrictions, and you are free to buy or sell even a single share.
Things to Remember while Opening a Demat Account
Knowing how to open a Demat account online, along with the steps to open a Demat account, is the majority of the learning. However, you should remember a few things while opening a Demat account.
- Link your Demat account to your trading account: It is advised to link the Demat account to your trading account as it is not useful without it. Alternatively, you could also opt for a depository participant like India Infoline, which offers Demat and Trading accounts under one roof.
- Beware of all the Demat account charges: Before submitting your Demat account opening form, read through the charges statement (opening and AMC charges). Being aware of the expenses upfront ensures that you are getting the best deal and no hidden charges.
- Fill in your details correctly: Remember to double-check the details in your Demat account opening form before submitting it to ensure that there aren't any mistakes or any unfilled fields. Errors may result in the rejection of your application.
- File your nomination: Having a nominee for your Demat account is critical since it makes the transmission of shares much easier in the future.
Learning how to open a Demat account online is the most important in your quest to invest in the stock market and make better profits than other investment instruments. With IIFL, opening a Demat account is easy and convenient. By keeping in mind the set of factors mentioned above and details, you, too, can open a Demat account at IIFL in a completely hassle-free manner.
Frequently Asked Questions Expand All
There are three types of Demat accounts: Regular Demat accounts, Repatriable Demat Accounts, and Non-Repatriable Demat Accounts.
Yes, like any other Indian citizen, NRIs can also open Demat accounts with an Indian stockbroker following the same account opening process.
Yes, you can nominate anyone as your nominee in your Demat account.
Yes, an individual can open as many Demat accounts with various stockbrokers.
You can open a Demat account with India Infoline at zero account opening charges. Also, you get to enjoy zero demat Annual Maintenance Charges (AMC) for 1 year.
Yes, you have to have a Demat account to apply for an IPO in India.
No, you do not need a Demat account for making investments in SIPs.
After selling shares, the money is reflected in your Demat account after T+2 days. You can withdraw money from the Demat account through your trading account after it is reflected in your Demat account.