What are Demat accounts?

WHAT IS A DEMAT ACCOUNT?

Demat refers to a dematerialized account.

Demat is very similar to your savings bank account. You have to open an account with a bank if you want to save your money, make cheque payments etc. Similarly, you open a demat account if you want to buy or sell stocks. So it is just like a bank account where actual money is replaced by shares.

A  ‘dematerialised’ account holds shares in electronic form, saving you the bother of holding shares in paper form. Possessing a demat account is now a prerequisite for stock market investments.

so, while your bank account keeps your money safe and transfers it from account to account according to your instructions without bothering you , your demat account keeps your shares safe and transfers it to the next owner when you sell it.

WHO PROVIDES THE SERVICE?

Demat services are provided by banks, financial institutions and stock broking houses. The broking houses in such cases also act as DPs (depository participants) intermediating between the depositories — CDSL or NSDL and the investor. To open a demat account, you have to make an application to a DP and submit required documents. Once you have a demat account to your name, you can open a trading account with a broker of your choice.

The shares bought and sold by you will be reflected in your demat account. Any previously held physical share can also be dematerialised and transferred to the account.The DP, at regular intervals, would provide you with an account statement showing the balance of shares in your demat account and transactions during a period.

In short, to start trading in shares you have to open two accounts-

1. A trading account -with the broker and
2.A de-mat account – Either you choose a bank/financial institution or a stock broker who could provide you the DP services.

CHARGES

The fees charged for DP services differ across the industry. Though the rates change, the charges normally go under the following heads:

1.Account opening fee
2.Annual maintenance fee
3.Transaction fee
Besides the above, depository participants also charge service tax as applicable.

DOCUMENTS REQUIRED

For opening a demat account one needs to provide a set of documents to the agent. They are:

1.Duly completed account opening form and passport size photos;
2.A copy of PAN card as proof of identity;
3.Personalised cheque/Copy of the bank passbook
4.A copy of passport/voter ID/ ration card as a proof of address
5.Signing of the DP-investor agreement.

On giving the above papers, the agent would complete the other formalities with the depository and facilitate opening of the account. You would then be given a unique account number (BO ID- Beneficiary Owner Identity), which would serve as a reference number for all further transactions.

A set of delivery instruction (DI) slips will be give to you from the DP. This is almost similar to he cheque book you get when you open your bank account. A DI slip has to be filled and sent to the DP on every delivery (sale of shares) you make. DI slip is an instruction to the DP to debit your account and credit the broker’s account with the specific stock.

Take note that the DI instruction has to reach the DP the very next day after the sale, failing which the securities won’t reach the broker and hence the exchange. This could result in auction of the security.

When you open a demat account with your stockbroker, you also sign and deliver a standing instruction for delivery of stocks that you sell.Hence, the broker handles the delivery system and you need not worry about all this.

CONCLUSION

With that, we end our discussion about De-mat accounts.More about the topic in our next lesson.

Bye for now !!

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11 Responses to “What are Demat accounts?”

ns verma

August 17, 2013 at 3:20 pm

thanks. i’m a new comer to stock market. your lessons are good.

khaleel

October 19, 2013 at 2:16 pm

good….

kishan thoriya

January 28, 2014 at 11:55 am

Really, it helped me a lot!!
Thanks

lakshman

April 5, 2014 at 5:24 pm

Good….it helps to a newcomer

Sunidhi

January 10, 2015 at 3:34 pm

sir,
If one doesn’t chooses to consult with a broker and wants to trade himself…. then will he/she be required to open a trading account ? Thanks :)

J Victor

January 12, 2015 at 7:44 am

yes :)

Sivakumar

February 8, 2015 at 2:06 pm

i am two years in this industry, but i got important, valuable basic knowledge…….Thanks a lot

pawan

April 22, 2016 at 9:01 pm

sir,
for opening a demate account it’s compulsory i have 10,000 rs

J Victor

April 25, 2016 at 8:21 am

No :)

Laljan

September 9, 2016 at 9:57 am

Complete details! !!

Bhushan

November 12, 2016 at 11:44 am

Do I need a Demat account if I want to only go for Intraday trading? Will opening the Trading Account only be sufficient in this case?

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