You will need a Demat account to invest in the stock market or buy and sell shares. In the past, people used physical currency to purchase stocks, but now everything has become digital.
A demat account enables investors to safely and digitally invest their money in the stock market. If you are new to investing, it’s important to understand how to open a demat account and how to use it. Let’s explore what a Demat account is in detail.
What is a Demat Account?
Demat is short for dematerialized. A demat account is an electronic account that holds digitally-held assets such as stocks, bonds, and mutual funds. The primary purpose of a demat account is to keep your investments safe and secure electronically.
The main institutions managing demat accounts in India are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL).
You need a Demat account to buy, sell, or transfer securities like stocks, bonds, and ETFs in the Indian financial market. By opening a demat account, investors can easily manage their shares and enjoy faster transactions compared to the older paper-based system.
Who Can Open a Demat Account?
Knowing if you are eligible is important before opening a demat account. Both Indian citizens and Non-Resident Indians (NRIs) can open a demat account, but the process is slightly different for NRIs.
Minimum Age: You must be 18 years old to open a demat account. Minors can open a demat account through their guardian, usually a parent.
PAN Card: A PAN card is required to open a demat account. It serves as your identification for financial transactions and tax purposes.
How to Open a Demat Account?
Choose a Depository Participant (DP): A Depository Participant (DP) is an intermediary between you and a depository, such as NSDL or CDSL. The DP is responsible for opening and maintaining your demat account. You can select a DP from various sources, including banks, stock brokers, and other financial institutions.
Some popular DP banks in India include:
- ICICI Bank
- HDFC Bank
- Axis Bank
Stockbrokers:
- Zerodha
- ICICI Direct
- HDFC Securities
- Angel One
- Sharekhan
Online platforms:
- Upstox
- Groww
- 5paisa
When choosing a DP, consider its fees, customer service, and ease of use. Some DPs offer discounts and allow you to open a demat account without charges, while others may impose an annual maintenance fee (AMC). Select the DP that best suits your needs.
Fill Out the Application Form: After selecting a DP, fill out the demat account application form. This form requires important information about you, including:
- Personal Information: Name, date of birth, gender
- Contact Information: Address, phone number, email
- Financial Details: Income, employment status
- Investment Options: Risk tolerance, investment objectives
You can complete the form online or at the DP’s office. If you apply online, you must upload scanned copies of the required documents.
Required Documents: You will need to provide the following documents to open a demat account:
- Identity Proof: A government-issued ID such as a PAN card, Aadhaar card, passport, voter ID, or driving license.
- Address Proof: Documents such as an Aadhaar card, utility bill (electricity, water), passport, or a recent bank statement.
- Bank Details: Link your bank account to your demat account using a recent bank statement or a canceled cheque.
- Photographs: Recent passport-sized photographs.
Ensure that all documents are valid and up-to-date. Some DPs may allow you to complete the process through video KYC or e-KYC, enabling you to verify your identity online instead of submitting physical documents.
KYC Process: The KYC (Know Your Customer) process is mandatory for all financial transactions. Your DP will verify your identity and address details. Depending on the DP, this may involve a video call, verification at a branch, or online document submission.
KYC helps prevent fraud and ensures your identity is accurate. During this process, the DP may ask you to sign an agreement outlining the terms and conditions for using the demat account.
Verification and Approval: Once you submit your documents and complete the KYC process, the DP will verify the information and process your application. Depending on the DP, this typically takes 2 to 7 days.
Upon successful verification, you will receive a Demat Account Number (DP ID) and other login details, allowing you to access your Demat account.
Types of Demat Accounts
Demat accounts come in different types to cater to various investors’ needs. Here are the main types:
- Regular Demat Account (for Indian citizens)
The regular Demat account is the most common option for investors in India. This account lets you electronically hold stocks, bonds, and mutual funds. - Repatriation Demat Account (for NRIs)
Non-resident Indians (NRIs) who want to invest in Indian securities can open a repatriation demat account. This account permits you to transfer money and securities to a foreign bank account and is linked to a Non-Resident External (NRE) bank account. - Irrevocable Demat Account (for NRIs)
An irrevocable demat account is designed for NRIs looking to invest in Indian securities without the option to transfer funds or securities abroad. This type of account is linked to a Non-Resident Ordinary (NRO) bank account.
Demat Account Fees
There are costs associated with opening and maintaining a demat account. Here are the typical fees to be aware of:
- Account Opening Fee: Some Depository Participants (DPs) charge a one-time fee to open a demat account, although many stock brokers offer free account openings.
- Annual Maintenance Charge (AMC): This is an annual fee your DP charges to maintain your account, which can range from ₹300 to ₹1,000 per year, depending on the DP.
Transaction Fee: A transaction fee, typically a small percentage of the transaction value, may apply to each transaction (buying or selling securities). - Dematerialization Fee: If you convert physical share certificates into electronic form, your DP may charge a dematerialization fee.
- Other Fees: Additional fees may apply for extra services such as depositing documents, transferring shares, or closing the account.
To avoid unexpected costs, it is crucial to carefully review the DP’s fee structure before opening a demat account.
How to Use a Demat Account
Once your demat account is open, you can use it for various activities, such as buying and selling shares and investing in securities.
- Trading Account
You need to open a trading account to engage in the stock market. This account allows you to place orders to buy and sell shares and other securities. It is usually linked to your demat account; when you buy securities, they are credited to your demat account, and when you sell them, they are deducted from your account. - Accessing Your Demat Account
Most DPs provide online platforms (websites or mobile apps) to access and manage your demat account. Through these platforms, you can check your holdings, transfer securities to another demat account, view your transaction history, and buy and sell shares, all through a single trading platform.
Opening a demat account is essential if you wish to invest in the stock market, bonds, or mutual funds. The process is straightforward and can be completed online or in person. Following the steps outlined above, you can easily open a demat account and manage your investments securely and electronically.
Before opening an account, research different DPs, understand their fee structures, and check the features they offer. Then, follow the steps provided to open a Demat account and start investing in the stock market successfully.