What is Demat Account and how to open it?
If you want to buy and sell in share market, you need to have a demat account. What is demat account? How Demat Account is different from trading account? What is the process of opening demat and trading account in India? If you are new to stock market investments and do not know anything about demat account, this article is for you.
What is Demat Account?
If you want to enter into stock market and want to purchase some shares, you need to have a demat account. As per Wikipedia, Demat account is defined as follows:
Shares and securities are held electronically in a Dematerialized account, instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker (or sub-broker). The Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialized account for the purpose of transacting shares.
I would explain this in simple terms. If you have money, what do you do? You would keep them in a locker or bank account. Similar way, when you buy shares, they need to be kept in electronic form at a place called Demat Account.
What is trading account then?
While a demat account is where your shares or securities are stored in electronic form, there is an account where you need to all purchases and selling of such shares. Trading account is where you do all transactions pertaining to this. So when you first buy shares, they would be purchased from trading account and then stored in Demat account. If you want to sell, they would be picked-up back from a demat account to trading account and sold in open stock markets at BSE or NSE or any other stock exchanges.
How to open Demat and Trading Account?
The process is very simple. However, I am giving step-by-step guide on how to open demat and trading account.
- Approach any Depository Participant (DP) registered with SEBI (e.g. ICICIdirect.com, Kotaksecurities, Sharekhan.com, HDFCSecurities etc.,)
- Fill account opening form
- Submit necessary proofs like Proof of Identify, Proof of Address and PAN copy. Submission of documents may differ from DP to DP
- Depository Participant would verify the documents and open demat account and provide you with a unique customer ID which is called Demat Account no.
- Depositor participants would also open trading account in case you have opted for.
- Depository participant would provide your login ID and password details where you can login, buy and sell stocks during stock market timings in India.
- Depository participant is only intermediary between investors and CSDL/NSDL where shares are held in dematerialized form. Means you are not opening a demat account with DP, but opening with NSDL and CSDL
- While filling the account opening form, you need to indicate bank account number where the funds would be transferred
- You should keep funds in your bank account to start placing buy orders from your trading account
Can we open multiple trading accounts with a single demat account?
Yes, you can have a single demat account and open multiple trading accounts with various stock brokers. This way, you can buy any stocks from any stock broker trading account and keep them in a single demat account.
Well, but what are the fees for demat account and trading account?
Basically, there are 4 types of charges:
- Account Opening fees: Currently many of the DP participants are waiving off account opening fees which would be between Rs 500 to Rs 1,000.
- Annual maintenance fees: This is a fee charged by DP for annual maintenance charges on your account which would range between Rs 500 to RS 1,000 per annum.
- Custodian fees: This is charged to investor for holding shares in demat account.
- Transaction charges: This is very important. These are the charges for each and every buy or sell transaction that goes through DP. Here is where stock brokers / DP’s would make lots of money. This would range between 0.25% to 1% on total traded value.
E.g. ICICI Direct.com would charge between 0.5% to 0.85% as transaction charges (buy or sell). Suppose if you buy Rs 1 Lakh of shares in a day, you would be charged between Rs 500 to Rs 850. After some time if you sell the same value of stocks, another Rs 500 to Rs 800 would be charged as transaction value for selling.
Another example is Sharekhan would charge between 0.25% to 0.6% as transaction charges. Suppose if you buy Rs 1 Lakh of shares in a day, you would be charged between Rs 250 to Rs 600. After some time if you sell the same value of stocks, another Rs 250 to Rs 600 would be charged as transaction value for selling.
If you are a frequent trader, you should choose a broker who would charge less transaction charges. If you use a wide variety of services like stock trading, MF trading, research, FD’s, NCD’s etc. ICICI Direct.com could be better. Hence it depends on the various services you would opt for and NOT just transaction charges.
What minimum number of shares do you need to hold on Demat Account?
You need not hold any shares in the demat account. Means it is a zero balance demat account.
Can we transfer shares from one demat account to another demat account?
Yes. Shares can be transferred from one demat account to another based on an application made to a Depository Participant.
Is there any nomination facility available?
Every demat account holder should do nomination of their demat account. In case of unforeseen death, shares held in demat account would be transferred to nominee without any legal issues.
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What is Demat Account and how to open it