What You Should Know About A Demat Account

12/16/2016

You need a dematerialized or demat account for any transaction on stock exchanges in India, such as investment in bonds, shares, mutual funds or any such financial instruments. Investors do not have to possess securities in physical form when they have a demat account. They can hold the financial instruments in electronic form in their demat accounts.

The following are a few things you should know about the accounts, as an investor.

Benefits

The major benefits are:

  • A single account is required all your investments in financial instruments such as mutual funds, bonds and stocks.
  • It is a convenient and safe method for storage of high value securities.
  • When you change address, you have to communicate the new address only to the depository participant (DP) and not to all the companies you have invested in.
  • Securities get transferred to you instantly, when you acquire them.
  • No paperwork is required for crediting bonus shares to your demat account.
  • Theft, fake documentation, delayed deliveries and other such potential issues related to physical transfer of securities are eliminated when you use a demat account.

Depositories

Different kinds of securities, including government securities, are held in electronic form by organizations known as depositories. These are similar to banks, except that these hold securities instead of money. At present, Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) are the two main depositories registered in India. CDSL is associated with the Bombay Stock Exchange (BSE) and NSDL is associated with National Stock Exchange (NSE).

Fees applicable

Different DPs charge different amounts as fees for opening demat accounts. Some, such as a few private banks, do not charge any account opening fee at all. Statement mailing charges, credit charges and annual maintenance charges are among the other charges that you may have to pay for. The amount of annual maintenance charges may vary according to the number of transactions carried out.

The Securities and Exchange Board of India (SEBI) seeks to encourage stock market investments and has introduced an account that offers limited services. Investments up to Rs.50,000 attract no annual maintenance charges, when held in such an account.

Opening a demat account

A registered DP can open an account for you. A DP acts as an intermediary between the depositories and the investors. Stock brokers, commercial banks, among others, may register as DPs with SEBI. A list of all DPs may be obtained from the websites of CDSL and NDSL.

For opening an account, you have to provide the following documents to a DP:

  • A copy of your PAN card.
  • Passport-sized photographs.
  • Proof of residence.
  • Proof of identity.

When you submit a filled in application form along with the above mentioned documents, your demat account can be opened shortly (within a few minutes when an account is opened online).

You may want to understand the various features offered by various DPs, along with the fees they charge, before you open a demat account with any of them. A basic services account may be adequate for you if you are a new investor.