Demat Account

Basics of Demat Account

Just like a bank account that safeguards all your liquid cash, an online Demat Account holds all your financial securities in safe custody. When you open a Demat Account with any SEBI registered stock broker and do any transaction such as buying a share, the shares bought are held in the depositories. There are two functional depositories in India namely – the Central Depository Services Limited aka CDSL and the National Depository Services Limited or NDSL. These depositories hold shares in an electronic format, in your dematerialised account. You can hold equities, mutual funds, bonds, exchange traded funds and invest in IPOs seamlessly in one-click through your Demat Account.If you own physical shares, you need to convert them to electronic records before using a Demat account. This process is commonly known as Dematerialization.

One of the most highlighting benefits of having an online demat account is – paperless receipts. The dematerialisation of receipts has made it easy for investors and traders to trade at real-time. There is no stress of keeping hold of thousands of receipts and producing them each time you want to trade and invest in the stock market. You can buy shares and hold them for a long period of time in electronic format in your demat account. The dashboard helps you to track your positions 24 by 7. Intraday trading has now become a profession thanks to real-time execution of the buy and sell orders. By opening an online Demat Account you can scale your investments and diversify your portfolio by investing in a variety of stock market trading products ranging from equities to non-convertible debentures (NCDs).

What Is Dematerialization

Dematerialization is a process by which a person can convert their physical shares and securities into digital or electronic format. With the dematerialization of the physical shares and securities, it becomes easier for an individual to buy, sell, transfer and hold shares. It secures them from any theft and makes it cost-effective at the same time.

Process of Dematerialization

Step#1:

The process starts by opening a Demat account (trading account), all you need to do is shortlist a depository participant that offers Demat services. You can also open a share market online.

Step#2:

To covert the physical shares into electronic or Demat form, you need to generate a Dematerialization Request. You have to submit a DRF i.e., Dematerialization Request Form available with the DP (Depository Participant). It has to be filled in and deposited along with the share certificates that you are holding. Each certificate must mention “Surrendered for Dematerialization”.

Step#3:

The DP will process this request along with the share certificates submitted by you, and simultaneously to the registrar and transfer agents through the depository.

Step#4:

Once the application is approved, all the share certifications in the physical form submitted by you will be destroyed and confirmation of dematerialization of shares will be sent to the depository.

Step#5:

The depository will confirm the dematerialization of share to the DP, and once it is over, your shares will be credited in your Demat Account which can be seen electronically.

Importance and Benefits of Dematerialization

Numerous investors still hold physical share certificates they bought before 1996. However, SEBI has made it mandatory to follow the process of dematerialization to convert the physical shares into electronic form. These include:

Safety: Dematerialization eliminates the chances of shares being lost, forged or misplaced, increasing the safety of the holding. They are stored in secure depositories, which has made theft a thing of the past.

Convenience: Thanks to the electronic nature of dematerialized shares, the problems related to their storage and maintenance have been eliminated. You won’t have to deal with lost or damaged certificates anymore.

Accessibility: All the records of shares are stored electronically and online. This allows you to access dematerialized shares from almost anywhere and anytime using the internet.

Cost-efficiency: Electronic trading doesn’t require cumbersome paperwork, which reduces a lot of expenses.

Flexibility: Dematerialization led to increased flexibility and therefore improved access for small investors. Now, one can buy/sell even a single share without any restriction on the numbers.

Documents required for account opening

For the convenient and hassle-free process of opening a Demat account, you must have some essential documents. Here is a compiled list of required documents given below.

  • Proof of identity with a photo. For example, Aadhaar card, PAN card, voter ID card, driving license, etc.
  • Proof of residence – Registered lease agreements, driver’s licenses, passports, landline telephone bills, electricity bills, apartment maintenance bills (if applicable), copy insurance, gas bills, etc.
  • Proof of bank account – The bank’s passbook or account statement (must be no more than three months old).
  • Proof of Income – Payslips or taxes (mandatory for the currency and derivatives segment)

Types of Demat Account

In India, there are primarily three types of Demat accounts offered by depository participants.

  • Regular Demat accounts: These are Dematerialized accounts for Indian residents. If you’re a resident of India dealing with equity trading and investment, a regular Demat account is ideal for you.
  • Repatriable Demat accounts: This is one of the two types of Demat accounts available for NRIs. A repatriable account allows you to transfer your funds abroad if you’re an NRI. You need to link this account with a Non-resident External (NRE) bank account to repatriate your funds.
  • Non-repatriable Demat accounts: If you’re an NRI, you can also choose to open a non-repatriable account. This type of account does not allow you to transfer funds abroad. It needs to be linked to a Non-resident Ordinary (NRO) bank account.

Features of Demat Account

By opening a Demat account, you can access many useful features.

  • Share transfer: You only need to send in a duly signed Delivery Instruction Slip (DIS) to your depository participant to transfer your shares.
  • Loan collateral: You can pledge the securities you hold in a Demat account and use them as collateral for securing a loan from a financial institution.
  • Temporary freeze: You can temporarily freeze your Demat account for a specific duration. However, this feature is generally only made available if you hold a specific number of shares in your account.
  • Quick transfer of benefits: Best Demat accounts offer a swift transfer of benefits such as dividends, bonus issue of shares, stock splits, interest, and refunds.
  • Speed e-facility: NSDL allows you to send instruction slips to your depository participant.
  • Easier holding: Maintaining physical certificates is cumbersome and risky. Opening a Demat account digitises the certificates enabling easier holding and added security.
  • Multiple Access Points: Being completely digital, Demat accounts can be accessed from anywhere using any digital device like computers, mobile phones, or other smart devices.

Benefits of Demat Account

In addition to being an indispensable part of the share market, Demat accounts come with several benefits:

1). Swift settlements and deliveries

2). Increased share trading volume and market participation

3). Increased transparency

4). Eliminates paperwork

5). Quick and easy communication with investors

6). Little to no risks are involved

7). Builds trust and increases investor confidence