What Is A Demat Account?
Last Updated: Nov -14-2019
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Investing into physical form of equity shares is a lengthy manual procedure which involves large amounts of paperwork, and risk of getting fake shares. A Dematerialized or Demat Account is essential for anyone who wants to invest into the stock market. It is an account which holds all the shares and securities in an electronic format. So whenever an investor buys shares, they are converted from physical commodities into electronic format and stored in the Demat account.
In this blog, Investyogi will try to showcase the various features and benefits of Demat account encouraging a large volume of investors to trade safely, and make better investment decisions.
Dematerialization is the process of converting physical share certificates into electronic format for easy management and accessibility. While online trading gains popularity, investor requires a Demat account handy to hold all the investments made in shares, government securities, exchange-traded funds, bonds, and mutual funds, all at one place.
Significance of Demat Account – Demat accounts provides a safe and secure way to hold shares and securities. The risk of theft, forgery or any damage to physical securities can be easily mitigated by opening a Demat account. In addition, Demat account gives you the required flexibility to access the account through any online platform (laptops, desktops, mobile phones), from any place at any time.
Demat Accounts are of two types - Repatriable Demat Account and Non-Repatriable Demat Account.
Repatriable Funds – These funds can be easily transferred abroad and are deposited separately in a bank account known as the Non-Resident External Account (NRE account). The investments made from these funds are deposited in the Repatriable Demat account.
Non-Repatriable Funds – These funds cannot be transferred abroad and are deposited in the bank account know as Non Resident Ordinary Account (NRO account). The investments made from these funds are deposited in the Non-repatriable Demat account.
Money can be transferred from the NRE to NRO account; however, once transferred, the money cannot be transferred back to the NRE account.
Demat account automates immediate transfer of funds in case of purchase or sell of shares. Moreover, Demat account holders can avail the following facilities:
- With the help of a Delivery Instruction Slip (DIS), the investor can smoothly executive the transfer of all his share holdings.
- Holding securities in the Demat Account can provide access to a variety of the loans to the investor.
- The process of dematerialization and rematerialization becomes easy. Investor can provide instructions for conversion of physical shares into electronic format and vis-a-versa.
- Demat account holders can avail benefits associated with owning securities such as stock split, right shares, bonus issue by companies, and more.
- Account holders can freeze their accounts for a specific duration as required, to avoid any unpredictable debit or credit in the Demat account.
- The National Security Depository Limited (NSDL) keeps extending various facilities from time to time to the Demat account holders. To avail these facilities, account holders can send electronic instruction slip to the depository participant (DP) instead of making any manual efforts. This makes the process faster and efficient.
- Demat account allows you to easily invest and earn better returns which is a profitable situation for the company.
Opening a Demat account can seem like a daunting task; however, if you wish to open a Demat account, the procedure is very simple. All you need is a depository participant with whom you would like to open a Demat account, and a list of documents.
Below is the procedure for opening a Demat account and the list of mandatory documents to be submitted while doing so.
- Income Proof – As a document of proof of income, investor can submit any of the following documents.
> Income Tax Return (ITR) acknowledgement slip
> Certificate of net worth
> Photocopy of the annual statement of accounts
> Form 16
> Salary slip of the current month
> Latest bank account statement containing income history of last 6 months.
> Document proving ownership of assets
- Identity Proof – As a document of proof of identity, investor can submit any of the following documents.
> PAN card
> Aadhaar card
> Driving license
> Voter ID
> Identity card having investor’s photo which is issued by Central or State Government
- Address Proof – As a document of proof of address, investor can submit any of the following documents.
> Voter identity card
> Ration card
> Insurance copy
> Registered lease or sale agreement
> Bank passbook not more than 3 months old
> Telephone/Electricity/Gas bill not more than 3 months old
> Identity card containing address which is issued by Central or State Government
> Address proof given in the name of Spouse
Demat account can be opened without having any shareholdings. Also, there is no mandate of maintaining a minimum balance. Once you gather all the important documents and find a depository participant, you can get started to opening a Demat account.
- Fill the account opening form.
- Attach a passport-sized photograph and submit the relevant documents.
- Keep the originals of the documents submitted handy, for verification purposes.
- The DP will give you a call to convey the agreement terms, and the necessary charges that have to be paid
- The details provided in the form will be verified over the call or in-person.
- After the application is processed, you will receive the account number or client ID from the DP.
- Once the Demat Account is opened, you will need to pay an annual maintenance fee for the maintenance of your account. In addition, you will be charged a transaction fee for conducting transaction through Demat account. In some cases, DP may also charge dematerialization charges.
Thanks to Demat accounts, investors need not spend time at the stock market. Investors can view their details by simply logging into the account and view the activities. Also they can now invest their time and money into real-time trading and making informed decisions with comfort and convenience.
In case you are looking to get started with stock market investments or looking to open account with any of the above listed stock brokers,let us assist you in taking the next steps ahead.
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