Nowadays, there are many investment avenues available to Indian investor like real estate, Gold, Bonds Etc. But first step for a new entrant to capital markets towards becoming a successful investor is to know what is a demat account and how to open it. It becomes easier to understand the meaning of demat account, if you have a savings bank account in your name (Off course you will!).
What is a Demat account? : Introduction
Indian stock markets have history of more than 150 years and until year 1996, all the shares were held in the form of physical certificates. This mode of operation was not efficient due to many of its disadvantages. Advance in technology made it possible to convert them from physical to electronic form.
Definition of Demat Account:Demat Account is an account which is used to hold the securities (Shares, Bonds and Debentures) in electronic form. It is an account much similar to savings bank account where currencies are held by notional value in electronic form.
- Read: Advantages and Disadvantages of Demat account
- Read: Fascinating history of Indian stock markets
Where to Open the demat account?
Demat accounts should be opened with one of the two organizations namely NSDL or CSDL. These organisations are called Depositories. But as a retail investor, you can not directly open the demat account with them. One has to go through the intermediaries called Depository Participants(DPs). These DPs are famous as “Stock Brokers/Share Brokers” in general parlance.
Understanding Depository and Depository Participants:
Depositories are created to establish the infrastructure to handle the process of de-materialization and maintain the securities in electronic forms. NSDL was the first depository which was established in 1996. CSDL started its operation in 1999. They have dematerilised more than 2000 crores of physical shares until now!
The organization involved in banking, financial services are eligible to become DPs after the detailed evaluation by Depositories and Securities and Exchange Board of India (SEBI). Some of the major DPs are ICICIdirect, Sharekhan and India Infoline Etc.
Procedure to Open the Demat account:
To open a demat account, one has to follow below steps
- Step 1: Approach the DP of your choice and and fill up the demat account opening form
- Step 2:Submit all the supporting documents. You can find the list of the required documents below
- Step 3: Your documents will be verified and if everything is proper, you will be provide with number called Beneficial Owner Identification Number(BO Number)
- Step 4:The entire process will take around 15 days depending upon the DP
Documents required to open a Demat account:
- Duly filled Demat Account Opening Form along with KYC Application Form
- Photograph of the individual, to be pasted on the form and signed across
- PAN card with photograph (mandatory)
- Proof of Identity: (Any one among Addhar Card, Passport, Voter Id, Driving License)
- Proof of Address: (Any one among Passport, Voter Id, Driving License, Ration card, Bank statement)
Charges associated with Demat account:
There are various charges incurred by the investor with respect to Demat account, few are one time and others are recurring.
- Demat account opening fee: This is one time charge levied while opening the account. It varies from broker to broker and nowadays competition is so high that some of them are even opening the demat account for free.
- Annual Maintenance fee: Just like your debit card yearly charges, maintenance charges for demat account is also applicable and again it depends on the broker. As on today, it varies from Rs300 to Rs700
- Brokerage: You will incur this charges only when you buy or sell shares. There are many components involved in this like brokerage, service tax, security transaction charges, stamp duty and different cess. Nowadays the discount brokers are providing the brokerage calculator tool using which one can calculate and understand the exact breakdown of the charges he/she is going to incur. For example, below screenshot shows the breakup of charges for an hypothetical example using the Zerodha Brokerage Calculator
As this is the most important factor which is going to affect your returns on investment, you should exercise due diligence while choosing the DP(Broker). Do proper research, understand types of brokers like discount brokers, full service brokers etc and most importantly compare various brokers before zeroing on the best broker to match your trading profile. You can use our Comparison tool to do side by side evaluation of two brokers.
- De-materialization Charges: If one still has shares in physical form (or inherited from ancestors), it can be credited to demat account and there will be nominal fees levied on it.
- Transfer of shares: If you wish to transfer your shares from one demat account to another account of your own or somebody else, you can do it following simple procedure and there will be some charges for this.
~*End Of Advertisement*~
Is there any limit on number of demat account one can open?
There is no limit on maximum number of demat account a single person can open/create i.e. you can open multiple accounts using a single PAN card with the same or different brokers. But usually most of the DPs have defined their own threshold on the number of account hence you need to check with them.
Can I open a joint account with my spouse?
Yes, off course!. A demat account can be opened jointly by maximum of three holders. But one will be main holder and other two are considered as joint holders. And a minor can not be a joint holder
Can I open a account for my minor child?
Yes, Demat account can be opened in the name of a minor. The account will be operated by a guardian till the minor becomes major, Guardian has to be the father or in his absence mother. In absence of both, father or mother, the guardian can be appointed by court.
Ok, That’s all regarding the meaning of demat account and how to open it. If you still have any queries, feel free to ask through comments. Hope you liked this post, you can find more such interesting and informative articles at our Archives page. You can also subscribe to our blog post below to receive the next post at your Inbox.
And oh yes!, please encourage by sharing this article through the social buttons on your left/below.