how to open a demat account

How To Open A Demat Account

Finance

According to a recent Economic Times report, about 3.76 million new Demat accounts are opened in the financial year 2018. Later last year, SEBI ( Securities and Exchange Board of India) recorded the number of new Demat accounts in 2019 gone high by 12.5 percent. It depicts the significance of Demat accounts in recent as well as upcoming years. So if you are also looking forward to trading, equity shares, or saving other financial assets, here is a step-by-step guide on how to open a Demat account

What is a Demat Account?

A Demat account is in a way like a bank account where the primary difference is, instead of cash balances, it holds equity shares and other securities. Earlier before 1997, the shares were available in physical form, i.e., share certificates, but after dematerialization, these can be held in a Demat account. 

Why do You need To Open a Demat Account?

If you want to invest in the share market, you cannot do it without having a Demat account as per the current scenario. It is highly significant to share trading. Here are some reasons to open a Demat account. 

  • Safer than Pre-dematerialization physical certificates: You don’t have to worry about dealing with theft, fake or forged share certificates like earlier it used to be. All the shares you have in your Demat account are genuine.  
  • Low Cost & High Saving: There are no additional costs, such as handling charges and stamp duties levied on share certificates. This makes Demat accounts more low cost and ideal for significant savings. 
  • Easy to manage & maintain: It is tiring to properly store and maintain the physical share certificates, whereas now, with a Demat account, it resolves all those issues. It is also available online where you can manage your shares and other financial assets just with your smartphone anywhere. 
  • Monitoring savings:  One Demat account of yours not just goes with the equity share market. It can be utilized to hold other financial electronic assets and ways such as debt securities, bonds, mutual funds, and more others. You can also track and monitor all of your digital financial investments under one roof. 

How To Open A Demat Account Step By Step Guide

You can better understand Demat accounts learning a few terms that play a crucial role in it, such as, dematerialization, depository participants, and the 16-digit client ID. 

Dematerialization: It is the process where share certificates are converted from the physical form to electronic form. It makes the management of shares much easier along with accessibility to provide it anywhere around the world. It also allows you to track, monitor, and manage your holdings on the go. 

Depository Participants (DP):  A depository participant (DP) behaves as an intermediary or agent provides namesake services to traders and investors. In India, NSDL and CDSL are the two central depositories registered available with SEBI and apex trading. 

16-digit Client ID: When you will have your own Demat account, you will be assigned a unique 16-digit client ID. It acts as a investors’ identity. The first 8 digits of your 16-digit Client ID represent the depository participant, whereas the last 8 digits are the investors’ unique identifier. 

The Procedure

Step 1: Select Depository Participant ( DP)

The first step in opening a Demat account is choosing a Depository Participant (DP). Various banks, online investment platforms, and stockbrokers provide DP services in India. Remember to select a service provider whose services and features compliments your requirements. 

Step 2: Submit Account Opening Form

Visit the official website of your Depository Participant ( DP). Fill the Demat account opening form and submit along with the passport-sized photograph and copies of the required documents. Remember to carry your PAN Card and the original documents as well. 

Step 3: Fulfil KYC Norms

Once you submit the duly filled Demat account opening form, you will have to fulfill the KYC ( Know Your Customer) norms. According to KYC norms, they will ask you to submit scanned copies of documents such as your identity proof, income proof, address proof, and bank account statement as well. Keep all the necessary documents beside you before you apply.

Step 4: Go through the Verification process

After the Demat account opening form submission along with KYC documents, you will be required to go through the In-Person Verification ( IPV) process. It is a mandatory part of the process with an intent to verify the authenticity of your documents. You may have to present a person in one of the offices of your service provider. It also depends upon your DP. However, many DP now provides IPV services online using a webcam or smartphone. 

Step 5: Sign the Agreement With Your DP

After you complete the IPV process, you need to sign an agreement with your Depository Participant (DP). Generally, this agreement includes all the rights and duties of the DP and the investors as well. 

Step 6: Get Access to Demat account online

You will also get the Demat account number and the client ID. You can access to your Demat account online using these details. 

Documents Requirements For Opening A Demat Account

You will require minimal documentation to open a Demat account. Due to this, it becomes easier for new applicants to overview the process from beginning to end without any hassle. You have to submit the documents mentioned below.

1. Identity Proof:  Submit a copy of your PAN card along with a passport-sized photo.

2. Address Proof: Submit a copy of any of the following documents that serve as proof of your residence. 

  • Voter’s identity card 
  • Driver’s license
  • Aadhar card
  • Registered lease agreement 
  • Ration card
  • Landline telephone bill
  • Gas bill
  • Apartment maintenance bill
  • Copy of your insurance 
  • Account statement/ Bank passbook 

3. Bank Account Proof: Submit a copy of your bank account statement or bank account passbook not older than three months. 

4. Your Income Proof: Submit a copy of your latest salary slips or Income Tax Returns (ITR). It is mandatory for the currency and derivatives segment. 

Open a Demat account is an easy, quick, and very smooth process. The Demat account is almost like your usual bank account, where it carries equity shares and other financial assets. With minimal documentation, you can open a DEMAT account. You just have to make sure to follow the standard procedure with the utmost attention.  

Objectives, aims, and benefits of Demat account

The Demat account comes from the conclusion of the dematerialization of the shares in the trading business. Here are some objectives, aims, and benefits of the Demat account you must learn. 

Convenience

Convenience for the investors is amongst the primary aim and objectives of the Demat account. In those days, if you wanted to transfer shares, you would have to send the shares to the registrar or the company to move it. 

This particular process used to be costly, tiresome, and extremely gradual with respect to the logistic speed of the delivery services in the country. Such a process takes almost a month to complete and sometimes the shares even get lost in the transaction process. But with a Demat account, you can make a quick transfer of shares. Nowadays, it just takes T+2 days to pull off an entire transaction. 

Demat accounts are incredibly convenient in following the various procedures. For example, changing the address was such a hassling process to go through back then. There is an application form for the investors to change their address and its a lengthy process. With a Demat account, you just have to inform the DP and update the address in the records.

Safety

One of the best objectives aims and benefits of a Demat account is assurance towards the safety of the client’s securities. In the Pre-dematerialization era, before the Demat accounts, physical shares were stored with high risk towards theft. Electronic storage of such financial assets with a Demat account makes it highly secure. 

Similarly, there were cases of forgeries in the past. When Demat accounts came to the scene, the forgeries and thefts reduced on a very significant level. It is also easy to track digital transactions and the movement of electronic financial assets and shares. You can detect the frauds and forgeries way more comfortable than the earlier case. 

Demat accounts prevent misplacement of securities, whereas those physical shares are just like any other document and prone to misplaced. Demat accounts changed the system and the process of trading, transferring various financial assets such as equity shares. 

Cost-Efficiency

Demat accounts improve the flow of the money, due to which it reduces the cost of the transaction automatically. Earlier times, when the shares were traded physically, the paperwork needed to happen to ensure safe delivery. It entails a lot of costs and expenses over the process.  

The logistic expenses are very high with the traditional way of trading physical shares. Also, there is an additional cost of losing plenty of valuable time in the process. Trading in shares those times meant buying a share transfer stamps and sticking it to the certificates. Even sometimes, the investors require to go stock exchange for receiving the share transfer stamp. One of the primary objectives, aims, and benefits of a Demat account is reducing the cost of the transfer and making it convenient for participants in the transaction. 

Flexibility

Any market strives to strike the maximum efficiency only when the small investors get the same opportunities as the big investors. There is an extensive range of terms and conditions related to investing. With physical trading, one of the limitations is you could trade only in even lots of shares. That means if you had been wanted to sell 61 shares of the company, you wouldn’t get any buyer in the market. 

It was also because the calculations were done manually; that’s why it makes more sense trading in even lots. With Demat accounts, you can easily buy or sell as many shares you want without any restrictions. 

The primary objectives’ aims and benefits of the Demat account are providing fast, efficient and smooth transactions of shares digitally without any hassle. It is the result of dematerialization offering seamlessly trading methodology making it more convenient and cost-effective. Not to forget, how safe and secure the transaction becomes through Demat accounts as the earlier ones were prone to theft, forgeries, and fraudulency. 

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