What is a Demat account and how to open one?

Demat or Dematerialized accounts are used to store digital assets like stocks. You can convert real shares into electronic form, purchase and sell stocks online, and more. A Dematerialized account is where investors can store their stocks, ETFs, bonds, and government securities. Investors can use it to make intraday trades as well.

What is Demat account meaning? 

What is Demat? A Demat account is a digital asset account that may be accessed electronically through a mobile device or computer. The primary function of a Demat account is to store and facilitate trading in all of your Dematerialized (converted to electronic format physical shares) shares.

The transformation of paper certificates into digital ones is known as "Dematerialization." As a whole, it ensures that the files are always within easy reach. Dematerialization's primary goal is to eliminate the need to store shares physically and to make tracking and monitoring more convenient. It facilitates the transition from physical to digital share ownership.

Importance of Demat Account

Before the invention of the Demat account, shares were represented by real paper certificates, which posed security risks. Each share of stock you owned required a dozen paper certificates, which you were responsible for keeping secure. These were easily forged, lost, stolen, or tampered with. Much paperwork was required, and transferring shares may take a while. You can keep track of your stock holdings in a secure digital vault by opening a Demat account.

It's easy to keep track of all the stocks you own and make bulk trades thanks to the Demat account's convenient storage and transfer features. In addition, it expedites the trading of supplies through the internet.

With a Demat account, you can store not only shares but also bonds, mutual funds, exchange-traded funds, government securities, and more, and any changes to the shares you own, such as a bonus issue or stock split, will be reflected in your account immediately. 

Types and Benefits of Demat Account

Regular Demat Account:

This type of Demat Account is for local Indian investors who want to trade shares alone and need a storage facility for securities. When you buy or sell shares of stock, the corresponding amounts are sent to and from your Demat account. Since F&O contracts don't require physical custody, there's no requirement for a Demat account to engage in F&O trading.

Basic Services Demat Account:

This new type of account is designed for first-time traders who have not yet established a Demat trading profile. In the basic services Demat account, no maintenance fees are charged for a balance up to Rs 50,000. But, if the balance goes above Rs 50,000 and below Rs 2 lakhs, then a minimum of Rs 100 is charged as maintenance fees. 

Repatriable Demat Account: how to open Demat? Non-Indian citizens who invest in the Indian stock market can deposit their profits in a repatriable depository account. One must cancel their domestic Demat account and set up a non-resident foreign account to receive repatriable funds.

Non-repatriable account:

Account holders who are neither Indian citizens nor permanent residents can open a "non-repatriable" account, which prevents them from moving money outside.

Investors now need to have a Demat account as mandated by SEBI. Without a Demat account, you cannot participate in the Indian stock market. You should become up to date on the account opening procedure and fees and choose a reliable depository participant. You should know how to open a free Demat account. 

How to open Demat Account

Here are the steps for how to open Demat account

• Choosing a Depository Participant (DP), such as a bank, financial institution, or broker that has been granted permission to hold Demat Accounts, is the first step in opening a Demat Account. Consider brokerage fees, annual fees, and available leverage when deciding on a DP.

• If you’re wondering, ‘how can I open a Demat account?’ Then you should know it is important to submit a completed Know Your Customer (KYC) form to open an account. You must also include copies of Identification (such as a driver's license or passport) showing the current address. Please make sure you have the originals with you for verification. You must also provide a canceled dividend check or bank information for the dividend deposit.

• After that, you'll have to sign a document outlining the rights and responsibilities of maintaining a Demat Account. Don't skim them; read them thoroughly and ask questions if you need clarification. A copy of this will be supplied to you along with the original when it is submitted to the DP for signature.

• The DP will issue you a unique Client ID at the time of account opening. You'll need this and additional information to access your Demat Account online.

• The DP will also provide instruction slips for its depository services (buying, selling, etc.).

Remember that there are no "minimum balance" requirements for starting a Demat account, meaning that the account can include any share or other securities. Moreover, you can have multiple Demat Accounts tied to the same PAN but only one Depository Participant (DP). You should also know how to open Demat account online.

FAQs

Q. How do you set up a Demat account?

To open any of these accounts, investors must first supply their Identification Number (PIN), and other required documentation by SEBI's Know Your Customer (KYC) standards. When opening a Demat account, the investor must provide a copy of their original PAN card.

Q. Approximately how long does it take to set up a Demat account?

The process could take up to three business days, depending on how you’ve set up the account. 

Q. How long would a Demat account last?

Demat account lasts unless you file an application to get it closed. However, if no trades are executed in the broking account within 30 days, any funds that have not been used must be returned to the client's bank account.