What is a Demat Account?
A critical tool for maximizing your wealth and safekeeping, Demat accounts make share trading quick and easy. It eliminates the risks and challenges associated with physical share certificates. In India, if you wish to invest in the stock market, it is mandatory to open Demat account.
Earlier, shares were held in a physical form through share certificates. However, it made the entire process of share trading cumbersome and difficult to carry out at short notice.
To eliminate these limitations, the National Securities Depository Limited (NSDL) was established in 1996. They introduced the concept of Demat accounts, which could be used to electronically store shares and securities of companies. If you own physical shares, you need to convert them to electronic records before using a Demat account. This process is commonly known as Dematerialization.
What is Dematerialisation?
Dematerialisation converts physical share certificates and debentures into electronic format. The term ‘Demat’ in Demat accounts stands for Dematerialisation, as investors essentially hold Dematerialised shares and securities virtually. In Dematerialisation, shares are directly converted into a digital format and stored in Demat accounts. The main aim of Dematerialisation is to ensure that the investors don’t have to hold physical shares and can trade and invest in real-time through virtually held shares in their Demat account.
To Dematerialise your securities, you must approach a Depository Participant (DP) to open a Demat account in India. The DPs utilise two depositories: the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), to open Demat accounts in India.
Importance of Demat account
With a Demat account, you can hold a wide variety of investments such as bonds, equity shares, government securities, mutual funds, and exchange-traded funds (ETFs). Similar to a bank account, a Demat account is either credited or debited each time you buy or sell shares of a company.
It not only eliminates unnecessary paperwork but also helps streamline the process of share trading. All of the Demat accounts in India are maintained by two depositories, namely National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
How does a Demat Account work?
The nature of a Demat account is homogenous to a savings bank account. Just like one can store cash in electronic form into the savings account, the investor can store securities into the Demat account of a depository participant (DP) associated with the NSDL or CDSL. When shares or securities are purchased, the Demat account is credited. However, the account is debited when shares or securities are sold. For transacting in equity and securities through your Demat account, it is a prerequisite to link it to your trading and savings account.
Documents required for Demat account opening
For the convenient and hassle-free process of opening a Demat account, you must have some essential documents. Here is a compiled list of required documents given below.
- Proof of identity with a photo. For example, Aadhaar card, PAN card, voter ID card, driving license, etc.
- Proof of residence - Registered lease agreements, driver's licenses, passports, landline telephone bills, electricity bills, apartment maintenance bills (if applicable), copy insurance, gas bills, etc.
- Proof of bank account - The bank's passbook or account statement (must be no more than three months old).
- Proof of Income - Payslips or taxes (mandatory for the currency and derivatives segment)
Demat account fees and charges
Several leading depository participants in India offer exceptional services. They charge a certain sum to open these accounts, which may vary for every participant. It makes it difficult for investors to comprehend the nature of services and fees a depository participant charges. To make it easy for you to understand, here's a brief explanation of the particulars of each service.
|Particulars of service||Charges Including GST (in Rs.)|
|Account opening fee||Rs. 295|
|Annual Maintenance Charges (AMC)||Rs. 0 (for the 1st Year)|
|Dematerialization of share certificates||Rs. 17.7 (per certificate)|
|Rematerialization of share certificates||Rs. 17.7|
|Conversion of Mutual Fund units||Rs. 0|
|Reconversion of Mutual Fund units into Statement of Account||Rs. 0|
|Postal charges||Rs. 47.2 (per request)|
When you open a Demat account with IIFL securities, there are no account opening charges, and the Annual Maintainance Charge for the first year is also waived off.
Types of Demat accounts
In India, there are primarily three types of Demat accounts offered by depository participants.
Regular Demat accountsThese are Dematerialized accounts for Indian residents. If you’re a resident of India dealing with equity trading and investment, a regular Demat account is ideal for you.
Repatriable Demat accountsThis is one of the two types of Demat accounts available for NRIs. A repatriable account allows you to transfer your funds abroad if you’re an NRI. You need to link this account with a Non-resident External (NRE) bank account to repatriate your funds.
Non-repatriable Demat accountsIf you’re an NRI, you can also choose to open a non-repatriable account. This type of account does not allow you to transfer funds abroad. It needs to be linked to a Non-resident Ordinary (NRO) bank account.
Features of Demat account
By opening a Demat account, you can access many useful features.
- Share transfer: You only need to send in a duly signed Delivery Instruction Slip (DIS) to your depository participant to transfer your shares.
- Loan collateral: You can pledge the securities you hold in a Demat account and use them as collateral for securing a loan from a financial institution.
- Temporary freeze: You can temporarily freeze your Demat account for a specific duration. However, this feature is generally only made available if you hold a specific number of shares in your account.
- Quick transfer of benefits: Best Demat accounts offer a swift transfer of benefits such as dividends, bonus issue of shares, stock splits, interest, and refunds.
- Speed e-facility: NSDL allows you to send instruction slips to your depository participant electronically. This not only makes the entire process faster but also less cumbersome.
Easier holding: Maintaining physical certificates is cumbersome and risky. Opening a Demat account digitises the certificates enabling easier holding and added security.
- Multiple Access Points: Being completely digital, Demat accounts can be accessed from anywhere using any digital device like computers, mobile phones, or other smart devices.
Benefits of a Demat Account
In addition to being an indispensable part of the share market, Demat accounts come with several benefits:
- Swift settlements and deliveries
- Increased share trading volume and market participation
- Increased transparency
- Eliminates paperwork
- Quick and easy communication with investors
- Little to no risks are involved
- Builds trust and increases investor confidence
Buying stocks in the share market can be done only through a Trading Account which is later held in a Demat account. Therefore, to realize the full potential of a Demat account, it is imperative to link it with a trading account.
Tips to Choose the Best Demat Account for You
Check whether the account maintenance charges are economical
Maintenance of Demat accounts involves annual charges irrespective of your transactional activity. You must, therefore, check out the range of charges involved with the Demat account and choose the most economical account.
Enquire about the account opening process
The Demat account opening process offered by your DP should be hassle-free and quick. Opening a Demat account involves a detailed process as per SEBI guidelines. The depository participant can simplify it with the help of e-KYC.Look for a seamless interface for broking and banking
Depository participants also offer Demat accounts that serve as trading accounts too, thus providing seamless transfer of money during the sale or purchase of shares and securities. An interface between the two accounts not only simplifies transactions but also makes them economical.Check if the DP offers customised analytics for Demat account holdings
Online analytics customised as per your choice of shares and security along with their investment habits allows you to increase earnings. You must look for value additions like these when choosing the best Demat account.
Additionally, features like a shorter turnaround time (TAT) for share Dematerialisation allow you to assess the DP’s commitment to serving investors.
IIFL’s financial products and services have enriched the lives of over 4 million customers. At the heart of IIFL is an award-winning research team, which offers world-class technological solutions. Through a single Demat account opened with IIFL, you can invest in various options such as IPOs, derivatives, equities, commodities, and more, with daily and weekly reports.
Frequently Asked Questions Expand All
You’re eligible to hold multiple Demat accounts, with the condition that you cannot open more than one Demat account with the same depository participant.
The following persons are eligible to open a Demat account in India.
- Resident individuals
- Non-resident individuals
- Hindu Undivided Families (HUFs)
- Partnership firms
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.
To open a Demat account with IIFL securities, you need to fill out an online form with your details and get your KYC details verified online.
It usually takes about 48 to 72 hours to open a Demat account.
After submitting your application, you need to complete the KYC process online.
A joint Demat account has three account holders - one primary and two secondaries. Transactions have to be validated by all three.