Demat Account : Meaning,Importance & How to open Demat Account?
(Last Updated On: August 16, 2017)
Through this blog you shall become aware of What is a Demat Account ? You will know the Demat Account Meaning, Benefits and also the Importance of opening a Demat Account. You shall become familiar as to How to open Demat Account ? In fact,the whole Demat account opening procedure shall seem much simpler to you.
To start with, in simple words, Demat means Dematerialization. Demat Account helps in holding securities in an electronic form rather than holding it in physical certificates. Demat Account does the same thing to securities as a Bank account does to money. Demat Account facilitates easy transfer, buying/selling of securities.
Features of Demat Account :
1. Easy Transfer of shares : Easy and convenient way of holding security and easy transfer of shares through DIS (Delivery Instruction Slip) or receipt instruction slip (RIS) for buying or selling shares
2. Pledging Facility : It facilitates pledging of securities to secure loans by account holders, The securities are held as collateral by the lenders
3. Faster Dematerialization & Rematerialization of Securities : It helps in faster conversion of the physical unit into electronic form and if necessary the account holder can issue a direction to its DP to reconvert it into physical units.
4. Multiple Access points : The account can be accessed from different terminals. The account can be accessed from internet operated devices and DP’s BackOffice.
5. SPEED E-Facility : This service is offered by NSDL in which the clients can send electronic delivery instructions to their DPs through Speed-e website (https://eservices.nsdl.com), instead of submitting DIS in physical form to their DPs.This makes the whole process quite convenient and saves a lot of time.
6. Corporate Benefits & Actions : The dividends issued by companies are directly credited to the bank account of holder linked with Demat account and also facilitates easy updating of bonus shares, Rights issue, stock split of all shareholders.
7. Nomination Facility : It enables the Demat Account holder to nominate an individual who can claim the securities held, post the demise of the account holder.
Benefits of Demat Account to investors :
1. Safer than a Physical certificate : It is safer than holding physical certificates as it eliminates the risk of loss, fraudulent activities or any trade going bad.
2. Can sell even one share : The shareholder can sell even one share from its holding very conveniently which was not possible before the advent of Demat Account.
3. Flexible workplace : It gives flexibility to traders and investors to work from anywhere through different terminals
4. Can keep all types of securities : The account can hold all types financial products like Mutual Funds, Debt securities, Equity, ETFs etc.
5. Reduced Cost : It eliminates costs like stamp duty and other expenses that were involved in physical certificates. Hence,this results in reduced overall transaction cost.
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Benefits of Demat Account to Stockbroker :
1. Reduction in cost and increase in efficiency : Reduces cost of operations and paperwork process results in greater efficiency and increase in profits. It also Increases the efficiency of the registrars and transfer agents and the Secretarial Department of the company for timely communication and services to shareholders.
2. Eliminates chances of forgery : Eliminates risk to any fraudulent activities, manual errors from the process involved in the transfer, buying/selling of securities by officials.
3. Higher trade volumes : After Demat account are made mandatory for trading and investing, investor’s confidence has increased in markets and resulted in greater no. of trades are being executed.
Demat Account in India :
In India, Depository Services are provided by NSDL (National Securities Depository) and CDSL (Central Depository Services). NSDL is the first depository established in 1996 to handle the process of Dematerialization and CDSL was established in 1999. SEBI generally oversees the rules and regulation of Depository Services.
For retail investors, the Demat Services are offered through Depository Participants (DP). Stock Brokers are generally known as Depository Participants(DP).Some major Depository Participants in India are IIFL, Karvy, Angel Broking etc.
How to Open Demat Account in India ?
The Demat Account Opening Procedure involves a set process to be followed by the potential investors. For opening a Demat Account, one need to approach a DP and fill the necessary documents with supporting documents like:
- PAN (Compulsory)
- Bank statement (last 3 months)
- Address Proof
- Two color photos
- Bank crossed Cheque
- KYC details
- Aadhar Card
Also read : What is cKYC or Central KYC ?
The DP will provide you with the terms and charges for opening and maintaining of the account.
In next process, the DP will contact you for in-person verification with the details provided in Account opening form. After successful verification of account, the DP will confirm your account and provide you with the details of Account no. and Client Id to access your account online as well as offline.
Types of Demat Account :
BSDA ( Basic Services Demat Account) : This account type is designed for small investors. It provides limited basic services to small investors with reduced charges. Any individual who has Demat Account or plans to open an account where he is the sole holder can open an account under BSDA.
Under this plan, BSDA holders are not charged AMC if the value of securities is under Rs 50000 and if the value of securities is in the range of Rs 50000- 200000, it would attract AMC of Rs 100. Anything above Rs 200000, then the account will be treated as Regular Demat Account and charges will be levied accordingly
Regular Demat Account : Prior to BSDA, all investors were required to open regular Demat Account. The charges and services of regular Demat services are more compared to BSDA. AMC are levied on all categories of investors from small to high-value investors.
Process of Dematerialization of Physical Shares :
- You need to request a DRF (Demat Request Form) which is available with the DP.
- Fill the DRF with the details of shares held in physical form.
- Submit the filled in form along with original share certificates to the DP.
- DP informs the Depository regarding the dematerialisation request.
- DP submits the share certificates to the registrar of the Issuer Company.
- The Registrar further processes the dematerialisation request from the depository.
- After dematerialising the certificates, the Registrar updates the accounts. The depository is informed regarding completion of the dematerialization process.
- Further, the Depository updates its accounts and then informs the DP.
- DP updates the Demat account of the investor with units of shares dematerialized.
Frequently asked questions ( FAQs)
Q. Can we have multiple Demat Account?
A. Yes, you can open multiple Demat account with different Depository Participant. But, there is restriction on maximum no. of Demat Account with single Depository.
Q. Does the investor have to keep any minimum balance of securities in his account?
A. No, there is no such requirement as such.
Q. Can an investor close his Demat account with one DP and transfer all securities to another account with another DP?
A. Yes. The investor can submit account closure request to his DP in the prescribed form. The DP will transfer all the securities lying in the account, as per the instruction, and close the Demat account.
Q. Can an investor freeze his account(s)?
A. Investor can freeze his account and/or ISIN and/or specific number of securities under an ISIN for any given period of time as per applicable Regulations of SEBI and Bye Laws of the respective depository.
Q. What type of instruments are available for Demat at Depository?
A. All types of equity/ debt instruments viz. equity shares, preference Shares, partly paid shares, bonds, debentures, commercial papers, certificates of deposit, government securities (G-SEC) etc. irrespective of whether these instruments are listed / unlisted / privately placed can be dematerialized with depository, if they have been admitted with the depository.
This was all about Demat Account,its features,importance,types and How to open Demat Account in India. Hope you have gained requisite knowledge on Demat account and Demat Account Opening Procedure in India.
Have you opened a Demat account for yourself or planning to do so ? Do share your valuable feedback on the same to help our readers take informed decisions.
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