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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Suresh
What is Demat Account and how to open it
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Well explained, In order to eliminate the complication that arises from taking possession of certificates, the shareholders in India make use of demat accounts.
Pls write an article on how to open a demat account, it will be useful for new traders.
Sir am new in that field sir but i can start with investing 1000 rupees only minimum
sir
pls tell about power of attorny and its importance in trading? can i open demat account with out signing power of attorny?
Wow! You are really awesome!
Actually, I can understand explanations mainly with examples. Now I can't forget the purpose of Demat and Trading acc. Many thanks Mr. Suresh.
Thank you.
sir , i want to invest money in stock market but i m new in this field ,i have no idea where to invest pl help
Keep reding my blog in stocks and mutual fund section. You should become familair in 2-3 months. Once you understnad, then try to invest
Hi Suresh,
Appreciate you efforts. Recently heard of no frills demat account which does not have maintainance charges if the assets are below 50000 and 100 rs charge if the assets are 50000 to 200000. Can you provide more info about this and how to open a no frills demat account to specify.
This is good option. However how many investors are there who invest only Rs 50,000 ? Hence I feel one should ignore such demat account options unless you want to keep it active to use it in future.
I got a great link to make a comparision between DPs from NSDL's website,
https://nsdl.co.in/about/dps.php
https://nsdl.co.in/downloadables/excel/A-M_DPs_Charge_Structure-March%202014.xlsx
https://nsdl.co.in/downloadables/excel/N-Z_DPs_Charge_Structure-March%202014.xlsx
Can you imagine, there are 693 DPs in India! Anyway, my question is, there are brokers like Muthoot Securities (at 441th position in the A-M list), they charge 20 per instruction. So, if I purchase/sell share worth Rs. 1 lakh in one transaction, will they still charge just 20 rupees? Again, there are many DPs which claims that buying: NIL, selling: 10 rupees or similar! Are they legitimate??
Good to know this Mohit. Yes even I heard that they do not charge while buying, but while selling they charge. I am analysing a list now about this expected to post an article in coming 1-2 weeks time. This would be mostly about top stock brokers for demat account and their charges
Hello,
Very informative and hope acquiring this knowledge would hep me in my future investment.
However, my question is ” What is cost of per share ?
And which would be better ICICI Direct or HDFC Securities ,if I want to get in Stock and Mutual Fund ?
Gogou, Cost of per share has 2 components. One is share price available in market and second is transaction charge to acquire such share. You should be checking about stock brokers who would be charging less transaction charges. You can open any of the ones indicated by you, however both charge high transaction charge unless you are regular trader. I would publish an article in coming weeks indicating lowest brokerage stock brokers list.
Dear Suresh
Many thanks for the crisp description of the subject. Look forward for such articles.
Also, what is your opinion about equity market now, if I am looking for a horizon of 5 years plus? Which ones would you suggest as asset creations
thanks in advance
regards
srinivas
Srinivas, Equity markets keep moving up and down. But invest in mutual funds thru SIP, then you need not worry.
Suresh ji please also elaborate on strengths & weaknesses of various DPs, risk associated, how to mitigate the risk, tips for safety etc. Can there be a common DMAT account for equity and mutual funds, FD etc. In the budget 2014-15 FM has made some announcement.
Thanks Naveen. If you can help me to put in “Suggest a topic”, I can do that. Every week, I am picking up from there and posting relevant articles useful to readers.
Thanks for the detailed explanation Mr. Suresh. Its simple and easy to understand. I liked this article.
But I have a small confusion about the purpose of Trading account. Because, Demat account is for keeping shares electronically, then what will be in the trading acc?
Trading account is to buy and sell shares. If you go to bank, you see “Cashier” who gives money and takes money from account holders. But there is is locker inside bank. Demat account is like locker, whereas “Cashier” is like trading account. All transactions would happen thru trading account. You may have many cashiers (trading accounts with ICICIdirect or HDFC Sec or Sharekhan etc.) but you can have one locker i.e. demat account.