If you have a Demat Account, you can invest/trade online without having to depend on any physical form of equity shares. Rather, you can hold securities and shares in electronic/dematerialized format. Thus, less paperwork means reduces risks to fake share certificates. You can buy shares and safely store the same here. This account also allows you to sell shares. To increase accessibility, the share certificates are converted to electronic form from the physical one.
- If you want to enter the stock market trading, then as per SEBI, it is mandatory to hold a Demat Account.
- The account streamlines all your credit or debit transaction.
- These transactions are recorded accurately.
- You can hold different forms of investments such as Exchange Traded Funds, Equity Shares, Mutual Funds, Government Securities, and Bonds.
In this post, we will discuss who is a depository participant, Demat Account facilities, documents needed, steps to open the account, and FAQs.
Who Is a Depository Participant?
A DP (Depository Participant) provides central depository services to traders and investors. In India it is the stockbrokers, online investment platforms, and stockbrokers can provide DP services. They are agents of registered central depositories such as NSDL (National Securities Depository Ltd) and CDSL. Both of these are registered under the regulatory body (SEBI) for trading and investment activities. A DP is thus a licensed agent of either NSDL or CDSL i.e., Central Depository Services (India) Ltd. It is allowed give services to those eligible to apply for a Demat Account.
A good DP should offer you the following:
- Analysis of companies and their stocks
- Bid and ask spreads
- Portfolio details
- Customize watchlist facility
- Stock feeds in real-time
Facilities You Can Avail Under a Demat Account
Here is the information about facilities:
- Digital Access
The biggest advantage of a Demat Account is that you can operate is digitally through different medias. You can obtain this facility through an internet connection on a smartphone, computer, laptop, etc. You can swiftly conduct trading, investing, monitoring securities and operations in a few clicks.
- Dematerialization and Rematerialization
You can convert securities to different forms. All you have to do is, give instructions to the DP (Depository Participant) to convert the physical share certificates to an electronic form. You can also request for the conversion of electronic securities to physical form.
- Share Transfer
As an investor you can use the Demat Account to transfer share holdings. You can do so through a DIS (Delivery Instruction Slip). To execute the transaction, make sure you provide the relevant details in the DIS.
- Corporate Actions
As a shareholder, you can avail several benefits associated with owning securities. The Demat Account holders can readily access dividends, refunds, interest provided by companies. Also, you will receive automatic updates about corporate actions linked to equity shares. These actions are related to stock split, bonus issue, right shares, etc.
- Take a Loan
You can apply for a variety of loans from the provider. In order to do so, you can pledge the security from Demat Account as collateral.
- Freeze the Account
As per requirement, you can freeze your Demat Account for a specific duration. To avail this facility, you should retain a certain quantity of securities in the account. Usually, people choose to freeze the account to avoid unpredictable credits or debits.
Documents Required for a Demat Account
The documents required to apply for a Demat Account are similar to that for a bank account. Here is a list of papers you need:
- Income Proof (any of the following): Salary slip of current month, latest 6 months’ bank statement, form 16, photocopy of ITR Acknowledgement Slip, papers that prove assets’ ownership, certificate of net worth, a statement of Demat Account holding with a DP.
- Identity Proof (any of the following): Aadhaar Card, Driving License, Voter ID Card, Passport, PAN Card with a valid photograph, identity card with photo issued by State/Central government/Public Sector Undertaking/Professional Bodies/Public Financial Institutions, etc.
- Address Proof (any of the following): Bank Passbook not older than 3 months, utility bills such as that for electricity/telephone/gas not more than 3 months old, address proof issued by a recognized body, Voters identity card, Passport, Ration card, Driving licence, Insurance copy, Registered lease or sale agreement of residence.
Steps to Open a Demat Account
Here are the account opening steps to follow:
- You need to choose a Depository Participant. Obtain the account opening form from the DP.
- Fill up the form, attach a passport-sized photograph and photocopy of documents.
- Carry your original documents for verification.
- Make sure you have a PAN Card, unless you are excluded for it under a condition.
- You will get a copy of terms of agreement, rules and regulations, and charges to pay.
- A representative of the DP will get in touch with you for an in-person verification. He/she will then verify the provided details from the account opening form.
- Post verification, the Depository Participant will give you the Demat account number or client ID. Keep this information safe as you will need the same to access the account online.
- It is not necessary to maintain a minimum balance. You can open the account without any shareholdings.
- You may have to pay an annual maintenance fee for the account maintenance.
- You may have to pay a transaction fee to buy or sell transaction through this account.
- The Depository Participant may charge you a fee for dematerialization (convert shares in physical form to electronic form).
Frequently Asked Questions about Demat Account
Here are the FAQs:
- What is a client ID for a Demat Account?
You will receive a 16-digit unique client ID from the Depository Participant. This will act as your (investor’s) identity. The initial 8 digits of the number represents the DP. The last 8 digits on the other hand, is the investor’s unique identification. The client ID facilitates purchase and sale of securities and shares.
- What are the additional benefits of an online trading account?
You can open a Demat Account as a single owner or jointly. A minor’s account is possible through a guardian, who is authorized to operate such an account. You can consolidate different folios from a certain organization into one folio. You can also freeze your account or security for a period of time. You can forward the physical share certificate with a signed letter to the company’s RSTA.
- Why should you link your trading account with the Demat Account?
You will need a trading account to buy and sell shares in stock market. This account is necessary, as with a Demat Acc. you can only hold financial assets. Linking both these accounts will assist to keep a track of all transactions, and make the relevant procedures simpler.
- What is an ISIN number and how to find it?
ISIN (International Securities Identification Number) is an identification code. It is 12-digits long and alpha-numeric in nature. You can use it to identify specific securities. You can find the ISIN number of a security on the website of CSDL and NSDL.
- What is the importance of a Demat Account’s Power of Attorney?
PoA or Power of Attorney is a person authorized to operate your Depository Participant Account. The option of PoA is subjective and not mandatory. You can revoke a Power of Attorney anytime. This is applicable under your behalf. You can grant PoA to your DP or broker. The authorized person can make transactions on your DP account and bank. He/she can then buy or sell shares with your permission.
- How to close a Demat Account?
To close the account, you may have to put ahead a request form to the DP. This form needs to be signed by all the account holders. Before the account closure, you will have to transfer the holdings. If any dematerialization request is pending, then the DP will not process the application for closure.