Know the Eligibility Criteria to Open Demat Account Online | Espresso

Eligibility Criteria to Open a Demat Account

To invest in the capital market, you first need to open a demat account, and to do so, you need to meet the necessary criteria to open a demat account. While trading in the stock market, an investor needs to essentially concern themselves with three accounts: the bank account, the demat account, and the trading account.

Assuming you already know what a bank account is, let us explore what a demat account is and understand the criteria to open one.

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Understanding a Demat Account

A demat account online acts as a bank account for your shares and securities, i.e., it holds your financial commodities such as stocks, mutual funds, government bonds, etc. Unless you open a demat account, you cannot trade in the share market.

Until recently, it was possible to trade with physical shares. However, in 2019, the SEBI (Securities and Exchange Board of India) mandated investors open a demat account if they wanted to buy and sell shares in the capital market.

A demat account online holds your shares and securities in a dematerialised (electronic) form. This way, you can trade, invest, and buy financial commodities with higher convenience and ease. Having a demat account online also does away with the hassle of managing your physical shares. It prevents the loss and theft of shares and being sold fake shares.

Who Can Open a Demat Account in India?

You can only open a demat account in India by approaching a depository participant (DP) who is authorised to open the demat account on your behalf with you as the investor.

Following is the list of entities who are eligible to open a demat account in India:

  • A Resident of India: To open a demat account in India, the individual must be a resident of the country. The law defines an Indian resident as someone who stays in India for at least 182 days of the financial year, or 60 days in the said previous year, or 365 days during 4 years preceding the said year.
  • Hindu Undivided Family (HUF): The term does not imply only Hindu families. The law considers HUF as a single entity, and all the taxed transactions are made under the family as a whole.
  • Domestic Companies: Domestic companies are Indian companies that are taxed under Section 2 (22A) of the Indian Income Tax Act, 1961
  • Non-Resident Indians (NRI): Even NRIs are eligible to open a demat account. They simply have to mention to the DP that they are NRIs and are expected to open separate accounts for repatriable and non-repatriable securities.
  • Clearing Members: This is a broker’s account where they hold the securities on behalf of their clients upon receiving them from the central depositories.

Eligibility Criteria to Open a Demat Account

The permitted entities who are eligible to have a demat account online are expected to meet certain criteria to open a demat account. The requirements are as follows: -

  • Age:

    Contrary to popular belief, you need not be 18 years of age to open a demat account. Even minors are eligible to have their demat account online. There is no minimum age to have a demat account in India.

    If an individual is under the age of 18, their demat account can be opened by their parent or a guardian who will be in charge of the minor’s demat account until the latter comes of age. Once the account holder reaches 18 years of age, the DP sends an advisory to obtain documents for transferring the details to the official demat account.

  • KYC:

    Know Your Customer (KYC) is a system to verify the address, income, and identity of the potential investor. Whether you open a demat account in person or online, KYC completion is mandatory.

    For the KYC process, the individual will have to share their PAN card. If you are opening a demat account online, you can simply upload a scanned copy of your PAN card.

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The process of opening a demat account online is swift and convenient.

  • Choose a DP to open the demat account with.
  • Fill the account opening and the KYC form and attach proofs of income, address, and identity.
  • Read and sign the agreement that mentions the responsibilities of your broker as well as yourself.
  • Once the documents are processed, you will receive your customer ID to operate your demat account.

Your DP will help you understand how to open a demat account. Some common documents required for account opening are: -

  • Proof of income: this can be a copy of your income tax return, your salary slip, or Form no. 16.
  • Proof of address: these are documents such as your driver’s licence, ration card, flat maintenance bill, etc.
  • Proof of identity: the documents that quality as ID proof include PAN card, passport, Aadhar card, etc.

Age is not a barrier to open a demat account. For minors, their parents or guardians can maintain the account until they come of age. However, the individual needs to complete their KYC before opening a demat account.