Important things to know before opening a Demat Account
The fundamental purpose of opening a Demat account is to facilitate your ability to hold equities (shares) that have been converted from the physical paper format) to a digital electronic version. Basically, a Demat account is a dematerialized account that enables you to trade shares electronically, which is quicker and easier than if you were attempting the same transaction with physical share documents. In this article we would provide important things to know before opening a demat account in India
5 Important things to know before opening a Demat Account
There are bound to be plenty of questions you have, such as how to open a Demat account, and what sort of charges and conditions are involved when it comes to using your online trading account. Here are some of the key points that you need to know if you plan to open a demat account in India
1) Why to have a Demat account?
Demat is an abbreviation of dematerialization and these accounts have actually been in existence for more than 20 years, growing in popularity as each year passes, with more than 40 million accounts in existence, currently.
The reason for the growth is the fact that India has witnessed an upward trend of companies listing on the BSE and NSE exchanges and a growing number of investors have been keen to get involved.
Investors have developed more sophisticated tastes and that has seen a shift away from more traditional investment products and opportunities such as real estate and gold, moving into the world of mutual funds, equities, and even more complex strategies involving commodities and derivatives.
Having a Demat account provides you with access to an electronic system for storing securities as well as derivatives and exchange-traded funds (ETFs).
In simple terms, you could view your Demat account as a more sophisticated version of a savings account.
You may like: Top BSE-30 Stocks that gained in the last 1 year even during covid
2) Different types of Demat accounts
Indian investors have access to three options when it comes to Demat accounts.
The most popular option is a regular Demat account which is available to investors who reside in India.
You can apply for a repatriable Demat account if you are a non-resident Indian national, although you must link this with an NRE (Non-Resident External) bank account.
Lastly, there is also a non-repatriable Demat account, which is available to non-resident Indians, which has to be linked to an NRO (Non-Resident Ordinary) bank account, but you cannot transfer funds overseas with this type of Demat account.
3) The Application process
As you would expect, there are various documents that you will need to provide in order to open a Demat account.
Although there are various firms and institutions offering Demat account the documentation requirements are mainly standardized and mandatory whoever you choose to apply to.
You will need to provide proof of identity, such as a PAN card with a valid photograph, or your identity card details.
Proof of address is also required, which can be verified using bank documents, utility bills, or a government document that satisfies the requirements.
Proof of income will be needed, which can be provided in the form of your income tax return, or a declaration of your net worth issued by a certified accountant.
You will also be required to provide evidence of your bank account and some passport-sized photographs. It should be noted that you will need to provide PAN card details with a valid photograph as a mandatory requirement when applying for a Demat account.
4) Choosing a broker
Your choice of broker to use with your Demat account is highly relevant and there are several aspects that you need to consider when deciding which one to sign up with.
There are two distinct types of broker available to you in India, a discount broker, and a full-service broker.
A discount broker will provide you with the basics that you need and will simply execute your instructions and provide you with access to equity and derivatives trading services.
Alternatively, a full-service broker will offer a much more in-depth range of options and support services, such as portfolio and management advisory services. Your choice of broker could be dictated by the level of support and advice you want and your level of sophistication and requirements as an investor.
You should also check the fee structures being offered as they tend to vary greatly amongst the various brokers in India. You should discover that competition for your business has resulted in most brokers providing free Demat accounts, but charging transaction fees when you buy and sell equities or access other facilities and options.
5) The right trading platform
Last but not least, it is very important to have access to the right trading platform, particularly if you are interested in getting involved with intraday trading.
Ideally, you might want access to different types of trading platforms so that you can execute your trades and check details as quickly and efficiently as possible.
Also Read: How to open free demat account in India?
Web-based trading platforms are very popular, as are mobile app trading platforms, allowing you to trade at your convenience and wherever you happen to be.
You should aim to make a list of the things that are particularly relevant to your needs when it comes to the trading platform and if you want to be able to execute trades quickly and efficiently while on the move it makes sense to see if you can find a broker that offers you the chance to do that in the form of a mobile app.
The efficiency of the trading platform can also be critical as even a momentary delay in executing a trade could prove costly. You want to be able to trade equities and derivatives as seamlessly as possible and if your broker offers you a combined Demat and trading account this should help avoid transaction delays.
If possible, it would be a good idea to check reviews from existing clients to confirm that the broker’s trading platform does what it says on the tin and will supply you with reliable and efficient access to trading opportunities.
If you cover all these basics when deciding to open a Demat account it should ensure that you are ready to join the millions of investors who are already reaping the benefits of widening their investment horizons.
If you enjoyed this article, share it with your friends and colleagues through Facebook and Twitter.
Team – Myinvestmentideas
Things to know before opening a Demat Account
- Kosamattam Finance NCD – Nov-2024 Issue – Details and Review - November 24, 2024
- Best Large Cap Mutual Funds to Invest in 2025 - November 23, 2024
- How to Balance Risk and Reward in Your Investment Portfolio - November 19, 2024
