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Demat account or dematerialized account is an account that holds financial securities, both debt & equity, in electronic form. Demat accounts can be used to hold equity shares, ETFs, mutual funds, bonds, and government securities. Demat accounts are just like banks, wherein every buy and sell gets credited or debited directly into the account. Basically, whenever you buy a stock, the shares get credited to your demat account.
For opening a demat account and trading account, you need to be at least 18 years old. In case you are a minor, a legal guardian will be required for opening the account. Despite your age, this will allow you to operate in shares and securities.
Additionally, you will require a pan card for opening a demat account. The following steps are to be followed to open a demat account:
For opening a demat account, contact the depository participant or DP, the details of which can be obtained from the official Central Depository Service or National Securities Depository Limited. For opening a trading account, approach a stock broker or broking firm.
Provide proofs such as address proof, PAN card, ID proof, etc. and fill in the KYC form.
In the case of a Demat account, you will be required to sign an agreement. Do not forget to get a copy of the same.
For a trading account, you will have to undergo a verification process.
After a few days, your trading and demat account will be set and ready to be activated and used.
Yes, you can open a Demat account online. As a matter of fact, online stock brokers are a preferred choice for beginners when they wish to start investing. Most of the demat account documentation is also submitted online which eases the whole process. But the Power of Attorney needs to be signed in its physical format. It is usually received in the mail and needs to be sent back to the brokers.
Usually, it is a common misconception that minors cannot enter the stock market, there is no such thing as an age limit when it comes to investing. Both adults and minors are allowed to open Demat accounts. With minors, once the guardians provide with the required documents, the account can be opened under their name also. Thus, there is no maximum or minimum age for opening a Demat account.
The demat account charges differ from DP to DP and the value of transactions. Starting from Rs 200, these charges also depend upon the value of holdings that the demat account owner possesses.
Apart from charges for opening a demat account, there might also be an annual maintenance charge and transaction fees for your demat account, which again, will differ from DP to DP.
Demat account opening fees may affect the investor's decision related to whether to open an account or not. To reduce this pressure many brokerage institutions take no charge for opening an account. Account opening charges can be free but the company's annual maintenance charges vary with each demat account.
It is possible to open a demat account without aadhaar card, but it can only be done offline. However, when opening the demat account online, it is advisable to use an e-aadhaar card for seamless and quick verification of the necessary details.
Currently, it is not mandatory to link the Aadhar card with the demat account, yet it can be submitted as a valid identity proof along with mandatory proof of address and proof of income by submitting any of the following documents:
Proof of Identity:
PAN card with a valid photograph.
Voter ID card / Passport / Driving Licence/ Aadhaar card.
Identity card with a valid photo, Public Sector Undertakings, Scheduled Commercial Banks etc.
Proof of Address:
Passport/ Voter’s Identity Card/ Ration Card/ Registered Lease document or Sale Agreement of Residence/ Driving License/ Flat Maintenance bill/ Insurance Copy.
Bank Passbook which is not more than three months old.
Utility bills like landline telephone bill, electricity/ gas bill which is not more than three months old.
Self-declaration of the new address given by judges of the High Court or Supreme Court.
Address proof which is issued by bank managers of Scheduled Commercial Banks/ Scheduled.
Cooperative Bank/ Multinational Foreign Banks, Gazetted Officer / Notary public, Member of Legislative Assembly, Member of Parliament.
Identity card containing address which is issued by Central/ State Government and its Departments, Statutory/ Regulatory Authorities, PSUs, Scheduled Commercial Banks etc.
Proof of Income:
Salary Slip of the current month or Form 16.
Photocopy of the Income Tax Return (ITR) acknowledgement slip submitted to the Income Tax Department during tax filing.
Latest statement of a bank account containing the income history of the last 6 months.
Certificate of Net Worth or photocopy of the annual statement of accounts authenticated by a Chartered Accountant.
A statement of Demat Account holdings with an eligible DP.
The demat account charges differ from DP to DP and the value of transactions. However, unlike individual investors, private companies do not have the option to open a demat account online; rather they can only open the account through an offline process.
The documentation required to open the account is quite different as compared to individual investors and with the required documentation and process, a private limited company can participate in the buying and selling of shares in the stock market.
However, it is important to ensure that it is in line with the company’s Articles of Association (AOA) & Memorandum of Association (MOA) and it complies with RBI regulations.
Features of Demat account:
Converts physical share certificates into electronic form easier and faster. If required, electronic forms of securities can also be converted into physical certificates.
Easy freezing of Demat accounts by the holder to prevent any unwanted credit or debit of shares.
Shares can be easily and smoothly transferred through DIS (Delivery Instruction Slip) and RIS (Receipt Instruction Slip).
DIS slip also can be sent to the depository participant online instead of manual transfer.
Demat accounts provide easy access and account holders can check on their account through smartphones, computers, laptops, basically with any device that has an internet connection.
Benefits of Demat account:
Offers secure storage for your stocks, hence reducing the risk of forgery and loss/damage.
Ensures a seamless and swift transfer of shares. Once you've secured a trade, those shares are transferred automatically to your account.
Trading can be done on the go, even with your smartphone.
Eliminates the costs of registrations like stamp duty and handling charges
Eliminates excessive, lengthy paperwork.
Once you’re done with the initial process by submitting the complete account opening form and have uploaded all the documents for verification, it takes about 12-24 hours for the demat account to open.
However, the maximum time bracket under which the Demat account gets activated is around 48 hours to 72 hours. This can also depend on the stock broker or institution.
Linking the two accounts makes transactions easier as you will not have to provide the details of your Demat account, every time you make a transaction. Hence, you can link the Demat account with the trading account.
After linking, once the order is placed through the trading account and processed, the shares will automatically be debited and credited from your linked Demat account.
For indulging in the trading (buying and selling) of shares, it is mandatory to open a trading account. However, a trading account cannot hold shares in it and is not associated with any depository.
A demat account is required for holding/storing the stocks that one owns, which is why a trading account cannot be opened without having a demat account.
Hence, it is not possible to buy or sell shares without having a demat account.
Yes, the Demat account from one stock broker can be transferred to another stock broker and it is quite an easy process. If the account is transferred between the same depository service provider (CDSL or NSDL), then the investor can themselves do the transfer electronically. In case the new broker has a different depository service provider (say, going from CDSL to NSDL) then the physical form needs to be filled and submitted with the previous broker.
Following are some of the key differences between the 2-in-1 account and 3-in-1 accounts:
Type of account:
The 2-in-1 account refers to a trading account and Demat account, whereas the 3-in-1 account refers to the trading, demat and bank accounts.
Ease of Transactions:
In 2-in-1 accounts, the transactional process between the 2 accounts is manual in nature. However, when it comes to the 3-in-1 accounts, the transactions are easier and convenient among the 3 accounts.
The brokerage charges in the 2-in-1 accounts are lower as compared to 3-in-1 accounts. Sometimes, brokers also offer flat rate discount brokerage plans.
In 3-in-1 accounts, the brokerage charges are more expensive. The brokerage is charged on the percentage of turnover.
In 2-in-1 accounts, the unused funds stay in the trading account, whereas in the 3-in-1 accounts, the unused funds stay in the linked savings bank account.
Interest on the unused funds:
In the 2-in-1 accounts, no interest is earned on the unused funds stored in the trading account.
In the 3-in-1 accounts, some interest is earned on the unused savings account balance.
Best suited for:
The 2-in-1 accounts are best suited for frequent and casual traders.
For the market beginners and casual stock market investors, the 3-in-1 account is more suited.