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How To Open A Demat Account?

How To Open A Demat Account?

A demat (dematerialization) account maintains investments that you buy in an electronic form. Just how a savings bank account holds your money, a demat account holds certificates of investments such as shares, bonds, government securities, mutual funds and exchange-traded funds in an electronic form. Savings accounts are opened with a bank, similarly, demat account is opened with a depository. A depository is a place which maintains ownership records and enables trading of securities. 

Financial Investments & What They Mean

Shares: Units representing ownership in a company entitling the holder of those units to a proportion of the company’s profits.
Bonds: An investment representing a type of loan given to a company or government. In return, the investor gets fixed interest and the principal amount on maturity.
Government Securities: Debt securities issued by the government such as a government bond
Mutual Funds: A fund that pools money from like-minded investors and professionally invests their money in stocks, bonds and other financial investments.
Exchange Traded Funds (ETFs): These are mutual funds that are listed on a stock exchange

Follow these 3 steps to open a Demat Account –

Step 1

Approach a depository participant (Known as a DP who act as agents of the depository) and fill up an account opening form with them

You can check out this list, containing details such as name, number, and email address of all the DPs in India –

 1. CDSL (Central Depository Services (India) Ltd.

2. NSDL (National Securities Depository Ltd.)

Most banks are also DP’s so you can open a demat account with your bank itself.

Ways To Open A Demat Account

Through Banks – Banks like ICICI, Kotak, PNB etc. are also depository participants that provide the facility of opening a demat account to their existing clients. Most banks usually come with a 3 in 1 service, since they provide facilities to open all three accounts (savings + demat + trading account). But note that their charges are usually high.

Through Brokers – Either through full-service brokers like Motilal Oswal that not only provide trading facilities but also investment advice or through discount brokers like Zerodha that provide basic trading facilities at a low fee.

Step 2

Documents Checklist

Keep these documents ready in order to open a demat account –

  • 2 Passport-sized photographs
  • A cancelled cheque/bank statement or passbook from your savings account
  • PAN, Aadhaar or Voter ID

Download or collect the account opening forms from the respective DP’s office or website. Fill them up and sign wherever necessary. Along with these forms submit a photocopy of your PAN Card, address proof, and bank statement.

After this, you’ll need to sign an agreement with the DP that states your duties as a trader and also the duties of the DP. A copy of this agreement along with a schedule of all the charges of the depository will be given to you. Keep this copy safely for future use.

Step 3

Check and compare charges of DPs from the CDSL and NSDL websites.

The DP will open an account and give you your demat account number (a.k.a beneficial owner identification number BO ID). Every time you buy securities they will be credited to your demat account and when you sell securities they will be debited from your demat account.

Since your demat account is linked to your bank account, any refunds, dividends, interest payments, all important ome as per the details you’ve given when you first opened the account. So if you’ve changed your bank account or postal address remember to update this information with your demat account.

To start investing in shares along with a demat account you also need to open a trading account. A trading account acts as a link between your savings account and your demat account. Buying and selling of shares happen through the trading account and the shares are stored in the demat account. To make it easy for the investor in most cases the trading account is opened when you open a demat account. 

Charges Involved

While opening a Demat account the following charges are levied –

  • Maintenance fee
  • Transaction fee
  • Charges for conversion of shares from physical to demat and vice-versa
  • Few depositories might also charge a fee for opening an account

Charges may vary between banks and brokers. So check and compare charges of all channels (Depository participants – DP) from the CDSL and NSDL websites.

💁‍♀️Pro Tip -

While applying for a demat account add a nominee so you can transfer your securities to them in case of your demise.

Now that you know how to open a demat account go ahead and open one to start trading! For any more questions on demat, comment and let us know. 

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