Initially, stocks and shares used to be exchanged via physical receipts called certificates. However, this resulted in lengthy paperwork and took up a lot of time. To counter this and to take advantage of an electronic trading platform that was gaining traction in the West and the Asian Markets, the process of dematerialization (demat) of shares was initiated in 1996. Physical share certificates were converted into electronic form securities of equivalent number and price and were credited to the investor’s Demat account. Thus, the advent of trading commenced this way.
In a more simplistic approach, Demat accounts allow the investor to buy and sell as well as transact not only shares and stocks but other products conveniently without the need for any sort of paperwork.
Such accounts are of crucial importance today because, the entire financial platform of investing, trading, and maintaining has become digitized. Hence, to enable the user with a seamless and straightforward experience, Demat accounts are the necessity of the day. These accounts are essential to trade in India’s stock exchanges. Although SEBI – Securities and Exchange Board of India, has permitted traded up to 500 shares to be settled in the physical form, it is not a preferable option these days since it causes excessive inconvenience of maintenance and tracking.
This account retains certificates of financial instruments such as shares, bonds, government securities, etc. Thus, the dematerialization account aids the investor to maintain their investments systematically as well as concedes an easy movement to buy and sell any products they desire.
A Demat account is more than just an account to hold securities. Through digitization, it adds to market transparency and better regulation.
Investing in physical shares is a lot of paperwork together with a lengthy procedure and a high risk of receiving fake shares. To keep this entire process simple and streamlined, an investor should choose to open a Demat account.
Online trading, enables the shares and securities to be held in such an account in dematerialized or electronic format. Dematerialization is the process of converting the physical share certificates to an electronic form to increase their accessibility
As per SEBI guidelines, such accounts are mandatory for every shareholder who intends to trade in stocks and shares, and other products.
Hence, to settle trades electronically, an investor requires a specific Demat account number.
It is a similar concept to that of a bank account; wherein there is a record of the debt and credit of the balances maintained in a bank passbook. Likewise, when a purchase or sale of a share is undertaken, it will be either credited or debited to or from the account respectively. Thus, holding such an account allows the investor to buy and sell shares or any other product and hold them safe and sound.
A Demat account can be used to retain several investments like shares, stocks, index and gold, bonds, Government securities, initial public offerings(IPOs), Exchange-traded funds (ETFs), and non-convertible debentures(NCDs), mutual funds, etc. which are traded on the exchanges. You can open a Demat account without owning any shares or products together with maintaining a zero balance account.
FUNCTIONING OF A DEMAT ACCOUNT
All your shares and investments namely securities, bonds, mutual funds, government securities, and ETFs are held either in electronic or Demat form in your Demat account. It is imperative to understand the process and bodies involved with the working of such an account. Below are the main functions of a Demat account :
FACILITIES OFFERED BY A DEMAT ACCOUNT
Demat account opening offers a wide range of facilities for the investor. Let us look at a few of them below:
Angel One services provide these Demat facilities to their investors and may more convenient and easy methods for trading.
HOW TO OPEN A DEMAT ACCOUNT
Demat Account Opening is an easy process with these simple steps :
An investor can open an account online in minutes through any bank or financial institution. There are various options available to open an account online; one such option is Angel One.
Things to know about opening a Demat account
The modern online account opening process has made it really simple to open a Demat account. In fact, in the current system, you don’t even have to visit the broker’s office for an account opening. You can simply fill in the electronic form, update your mobile number and email id, complete KYC compliance with a preferred DP and get a Demat account open in under an hour. But as an informed investor, you must get aware of the following.
Documents needed for Demat: You need a list of documents to complete the KYC process. It includes identification and address proof, bank account details, PAN, Aadhaar, and such. You will get a list of documents required for account opening from the DP. Make sure you provide the correct documents to avoid your application getting rejected.
Charges: There is an array of fees collected by the broker, ranging from taxes levied by SEBI to operational fees. Charges are a crucial metric to select the right broking house since these are additional costs you would need to bear along with capital fund investment.
Linking Demat: Opening Demat is the first step to investing in securities, but a Demat account is meant to hold the securities during transactions. You need a trading account, linked to your Demat, to carry out trading. You can have trading and Demat accounts with separate broking houses. But it adds to the process requirement of transferring scrips from one account to another and transaction time. For faster and seamless transactions, you may open both accounts with the same broker.
File nomination: Registering a nominee to your Demat saves a lot of time and hassle in the future. It is an important step that we often ignore. However, we suggest naming a nominee for your account while opening the Demat.
Additional Features Of Demat Account
These are some of the additional benefits you can enjoy with a Demat account.
Consolidation: It is possible to consolidate different portfolios of the same company to create a new portfolio. You can forward the physical certificates with a letter duly signed seeking consolidation to the RSTA of the company.
Account freezing: There is a feature that allows you to freeze your account, any security, and even any number of securities for a specific period. You can do it to prevent any unwanted action in your account.
Account types: Demat account can take different forms, just like a bank account. You can open a joint Demat account, or in the name of a corporation, multiple accounts, and even in the name of a minor. However, a minor’s Demat account will need a guardian to operate the account.
However, opening an account comes with its fair share of charges which would involve an annual maintenance fee, a transaction fee, or a commission for every transaction carried out by the DP. Additionally, depending on the DP a fee may be charged for the dematerialization of the shares. But on the brighter side, there are no mandates to sustain a minimum balance. Such accounts can be opened without holding any securities.
Yes, the Demat account opening is free of cost. However, there a few additional charges.
Account opening with Angel One is a 100% paperless process. Following are the documents that are required for opening an account.
Following are the types of account that you can open with angel broking
Any individual who is a resident of India with the required proof of identification, proof of address, proof of income can open a demat account to purchase and sell securities and other instruments through the stock exchanges in India.
Yes, an NRI can open a demat account; however, rules of FEMA – Foreign Exchange Management Act will be applicable.
As per Reserve Bank of India (RBI), an NRI can only own up to 5 % of the paid – up capital in an Indian registered company. An NRI can invest in IPOs – Initial Public Offers, however, it is based on a repatriable basis using the NRE demat funds through their NRE (Non-Resident External) Rupee bank account. Nevertheless, if the NRI invests on a non-repatriable basis, then their NRO (Non-Resident Ordinary) Rupee account and NRO demat account will be operated.
Through the PINS – Portfolio Investment Scheme an NRI is permitted to transact in shares and mutual funds through their account in India.
Yes, nomination facility is available in demat account.
It is advisable for all individual beneficial owners to avail of this facility. Resident Individuals, NRIs presently having or opening new accounts either singly or jointly can appoint a nominee. If the account is held jointly all the joint account holders are required to sign the nomination form. The nomination can be changed or updated as and when required. However, Non-individuals including society, Karta of Hindu Undivided Family, Trust, corporate body or holder of power of attorney cannot nominate.
Yes, multiple demat accounts can be opened by an investor. An investor can open more than one account in the same name with the same DP as well as with various other DPs. However, for all accounts, the investor is required to strictly comply with the KYC regulations and provide Proof of Identity, Proof of Address and other documentation proofs as stipulated by SEBI. The PAN card of the investor is mandatory and is required to be furnished at the time of setting up the account.
Yes, a demat account can be opened jointly. However, a demat account can have a maximum of three account holders that is one main holder and two joint account holders
Yes, a demat account can be transferred from one DP to another DP. The investor is required to submit the transfer or closure request to his DP in the prescribed form. The said DP would transfer all the securities and investments presently in the account as per the investor’s instructions to the new DP account.
An investor is given the option to apply for and obtain the shares of an IPO in physical form. However, it is suitable to apply for an IPO through the demat form since the shares issued through an IPO are tradeable only in form
No, a demat account is mainly for the transaction of shares on the stock exchange. Mutual fund investments of any kind including SIP can be carried out directly by the investor or through a bank or financial institution.
Demat account stands for the dematerialised account used for holding any form of financial securities in electronic format. Investors use a Demat account to hold equity shares, bonds, debentures, mutual funds, ETFs, government securities, and more. It facilitates managing and monitoring all financial securities in one place and quickens the buying and selling process.
Mutual fund investors have the option to transfer MF units to a Demat account. It simplifies the process of managing all financial securities in one place.
Investors can apply to convert mutual fund units into Demat format by availing a conversion request form from the broker or depository (CDSL or NSDL)
Demat account, as such, doesn’t hold money. If you have linked your bank account with the Demat, then the sales proceeds of an asset from the Demat account will be credited directly to your bank account.
To receive delivery of IPO shares a Demat account is a prerequisite.
Investors can open a Demat account by submitting PAN, Aadhaar, Address and Identity proof, along with bank account details.
Since the whole process has become digital, one can open and activate a Demat account within 24 hours. Don’t miss an opportunity to apply for the best IPO offers. Get an Angel One Demat account today!
