Dematerialisation means converting physical security certificates into electronic forms by holding them in a Demat Account. Dematerialisation only changes the form of holding and does not change its ownership or quantity. You must open a Demat Account with a reputed depository participant to dematerialise your investment certificates. A Demat Account is like a bank account where you can store your securities, while you will need a Trading Account to buy or sell them.
What is a Demat Account?
A Demat Account is a digital account that helps investors hold securities electronically. Also called a dematerialised account, it keeps your securities safe and accessible. It is a prerequisite to trade online, as it holds your securities and protects them from forgery, damage, or theft. The Securities Exchange Board of India (SEBI) regulates the market, avoiding any possibility of fraud.
Types of Demat Accounts
There are three types of Demat Accounts in India: regular Demat Accounts, repatriable Demat Accounts, and non-repatriable Demat Accounts.
- Regular Demat Accounts are meant for resident Indians only who want to handle shares themselves.
- Repatriable Demat Accounts are meant for NRIs who must comply with the Foreign Exchange Management Act guidelines.
- Non-repatriable Demat Accounts are different accounts for NRIs that do not allow investors to transfer funds to their foreign accounts.
Who Can Open a Demat Account?
Every resident Indian above 18 years of age can open a Demat Account. Any individual, trust, sole proprietor, company, or partnership firm can own and manage this account to hold securities online. If you want to invest in a mutual fund, you can start your investments with the help of a Demat Account once you select the best mutual funds for SIP. However, a Demat Account will be optional if you want to invest in SIP. You need a Demat Account only to hold securities like bonds, mutual funds, stocks, ETFs, IPOs, etc.
Documents Required for Demat Account Opening
To open a Demat Account, you need to provide some documents to initiate the account opening process:
- Identity proof
- Income proof
- Address proof
- Passport sized photograph
- Cancelled cheque
Steps to open a Demat Account
- Fill in your details like name, phone number, and email address
- Enter an OTP received on your registered mobile number
- Provide your Aadhaar card, PAN, and bank account details
- Pay account opening charges using your preferred method
- Upload the required documents
- E-sign the account opening form
Congratulations! Your Demat Account opening process is complete.
Things to Know Before Opening a Demat Account
- Technically, you can open a Demat and a Trading Account with different brokers. However, you must open both with a single broker to ensure smooth trading without hassles.
- Several brokers allow investors to open and manage their Demat Accounts for free. However, even if you do not trade actively, they charge annual maintenance charges (AMC). Additionally, you must pay a fee for every trade. Enquire about these Demat Account charges before opening one.
- Leading depository participants educate investors about trading fundamentals, provide them with market insights, and offer value-added services for efficient financial management.
- Apart from providing high-quality customer support services, the broker should also help you deal with issues like customer complaints, pledges, etc.
- Skim through online reviews to know the broker’s track record and ensure no regulatory investigations.
- Identify a nominee while opening a Demat Account to ensure the nominee gets your investments in case of your demise.
- A Demat Account is transferable. If you want to transfer your Demat Account to another depository participant, you must sign in to your account and fill out an online application form. The new depository participant will complete the verification process to complete the transfer and send you a password via email.
Investing in the share market helps you earn returns on your investment. That means you make money and increase its value over time. The returns are higher than saving accounts, fixed deposits, etc. It is like getting a share in a company’s ownership. As the company achieves success, you get a share of its profit. So, open a Demat Account now and start investing to diversify your portfolio and generate returns over time.