Earlier, when traders bought shares of any company, physical share certificates were issued in their name. This involved tons of paperwork and also several risks. To do away with this system, Demat account system was introduced in 1996 for trades on NSE.
The full-form of Demat is dematerialisation which is the process of converting physical securities into an electronic format. Today, physical certificates are no longer issued. Rather, when you buy shares, they are credited into your Demat account and vis-versa.
In this article, we offer a guide to Demat account for beginners to help you understand the meaning and benefits of Demat accounts. We also offer a step-by-step guide on how to open a Demat account.
What is a Demat Account?
As mentioned earlier, Demat stands for dematerialisation. A Demat account is a type of account designed to hold your share certificates and other securities in an electronic format. It works like a digital locker for all your shares, bonds, mutual funds, and ETF investments.
Storing your investments in a digital account means you won’t have to handle physical share certificates and other investment-related documents. Demat accounts also make transactions and portfolio management easy. Moreover, as per SEBI, you need to first dematerialise physical share certificates to sell or transfer them after 1st April 2019.
How Does a Demat Account Work?
To understand how Demat accounts work, you will have to understand their link to share trading accounts in India. Your Demat account holds your investments in a digital format, while your share trading account is used to place buy and sell orders on the stock market.
Both accounts work together during every transaction. The share trading account executes the order, and the Demat account receives or releases the securities.
So, let’s say you want to buy 10 shares of Company XYZ at ₹100 each. Here’s how your dematerialised account for investments processes the transaction:
- You begin by logging into your linked Demat and share trading account, which is connected to your bank account.
- After you place the buy order, your Depository Participant (DP) immediately forwards the request to the stock exchange for execution.
- The stock exchange then searches for a seller offering the same shares at your bid price.
- Once the price matches, the clearing corporation processes the trade and securely transfers the shares from the seller’s Demat account to your Demat account.
Types of Demat Accounts
Now that you know what is a Demat account, let’s try to understand the various types of dematerialised accounts for investments:
- Regular Demat Account: This is a type of dematerialised account for investments that can be opened by Resident Indians.
- Repatriable Demat Account: NRIs can open a repatriable Demat account where funds within the account can be transferred abroad. However, the Demat account has to be linked to an NRE account and must adhere to FEMA’s rules.
- Non-Repatriable Demat Account: A non-repatriable Demat account is linked to an NRO account and funds from this account cannot be transferred abroad.
Benefits of a Demat Account
The key benefits of a Demat account are listed below:
- No Need for Paper Certificates
Before Demat accounts, shareholders were issued physical share certificates which had to be stored carefully. But such certificates were still vulnerable to damage, loss, theft, and possible forgeries. The introduction of dematerialised accounts for investments changed this.
- Easy Access and Fast Online Transfers
You can access your Demat account using your smartphone or laptop to place trades or track your investments. When your Demat account is linked to a share trading account in India, buying and selling securities also becomes quick and effortless.
- Easy Tracking of Securities and Trading Activities
Your securities trading and Demat account setup lets your track your transaction history, holdings, purchase and sale records, and portfolio value changes. This can help you stay updated and make informed investment decisions.
- Store Multiple Assets in One Place
One of the key benefits of a Demat account is that you can use it to store multiple assets like shares, bonds, mutual funds, and ETFs. In other words, a Demat accounts may help simplify investment planning and management since you can track and manage all investments through a single account.
- Easy Online Access
You can access your Demat account at any time using your smartphone or laptop. This means you can manage your investments from anywhere in the world, at any time.
- Nomination Facility
Before, legal heirs had to go through a complicated process to liquidate share certificates. But Demat accounts changed that with the built-in nomination option. So, if the accountholder passes away, the appointed nominee receives their shares.
How to Open a Demat Account?
The online process for Demat account opening is simple. The following step-by-step guide simplifies how to open a Demat account for beginners:
Step 1: Choose a Depository Participant (DP)
Select a DP such as a bank, brokerage firm, or financial institution that’s registered with CDSL or NSDL. Compare their services, brokerage, and annual charges to find the right fit for your share trading account in India.
Step 2: Fill in your Basic Details
Visit the DP’s platform and complete the application form. Provide all essential information like your name, mobile number, email ID, and PAN.
Step 3: Link your Bank Account
Enter your bank details, including account number and IFSC code. This ensures smooth transactions like fund transfers, dividends, and settlements directly into your dematerialized account for investments.
Step 4: Upload your Documents
Upload your photograph along with identity and address proof. Income proof documents may be needed if you want to access the futures and options segment. Most DPs allow fully digital uploads for a seamless experience.
Step 5: Complete Online Verification
Record a quick IPV (In-Person Verification) video or join a short live e-KYC call if required. This step confirms your identity under the securities trading and Demat account regulations.
Step 6: E-Sign the Form
Use your Aadhaar-linked mobile number to digitally sign the application. This paperless e-sign process speeds up your Demat account approval.
Step 7: Submit & Receive your Account Details
Once submitted and verified, you’ll receive your Demat account number and login credentials. You can now start trading and investing through your integrated Demat and share trading account.
Documents Needed to Open a Demat Account
If you want to open a Demat account, you must understand the documents needed to go about it. Here’s a common list of documents you should keep handy for the KYC process:
- PAN Card
- Proof of address (Aadhaar Card, passport, or utility bills of not older than 3 months)
- Proof of identity (Aadhaar Card, passport, driver’s license, or Voter’s ID)
- Proof of income (ITR receipts, last 6 months’ bank statement, salary slips, or Form 16) may be needed for the derivatives section
- Passport size photographs
Note: Please note that this is an indicative list. The list can vary depending on your DP and the your investor category. For instance, companies opening Demat accounts need to present their MoA, certificate of incorporation, and AoA as valid documents.
Charges Associated with Demat Accounts
Now that you know how to open a Demat account, it’s time to understand the costs associated with such accounts:
- AMC (Annual Maintenance Charges): Your DP collects a yearly fee to maintain your Demat account and ensure continued access to stored securities.
- Custodian Fees: DPs charge a one-time or annual custodian fee as well. This is paid to the depository (CSDL or NSDL) directly by the brokerage firm.
- Demat and Remat Charges: Fees for converting physical shares into electronic form (demat) or converting electronic holdings back to physical certificates (remat).
- DP Charges: Transaction fees are charged by the DP for every debit of securities from your Demat account during a sale or transfer.
- Pledge Creation/Closure Charges: These are the fees applied for creating, closing, or modifying a pledge on your securities when using them as collateral for loans or margin.
Demat Account: Making Investments Safe and Accessible
A Demat account gives you a safe, digital place to store all your investments. When everything is held in one account, it becomes easier for you to track your holdings, receive updates, and manage your money without dealing with any physical paperwork. Understanding how a Demat account works helps you invest with more confidence and clarity.
If you plan to invest in bonds or debentures, you’ll need a Demat account to hold them. On GoldenPi, you can explore a wide range of fixed-income options, and if you don’t have a Demat account yet, we can help you open one quickly with a trusted leading broker so you can start investing smoothly.
FAQs on Demat Account
1. How long does it take to open a Demat account?
The online Demat account process has cut-down on the time needed to open a dematerialised account. If you open a Demat account online, activation can happen within a few hours as long as your documents are accurate and verified. But, if you choose a physical, paper-based process instead, it may take 48–72 hours to be fully activated.
2. Who can open a Demat account?
The following entities are eligible to open a Demat account in India:
- Indian residents aged 18 years and above
- Minors with a PAN card under the supervision of a guardian
- Non-Resident Indians (NRIs)
- Hindu Undivided Families (HUFs)
- Corporate entities, including:
- Partnership firms
- Limited Liability Partnerships (LLPs)
- Public limited companies
- Private limited companies
- Trusts, societies, and partnerships
3. How can I open a Demat account for free?
There are several DPs that offer Demat accounts for free. You can check the list of DPs that waive the initial account opening charges and open a Demat account for free.
4. Can I have two Demat accounts?
Yes, you can hold multiple Demat accounts with different brokers, as long as your PAN is the same.
5. What is a Joint Demat account?
A joint Demat account is a shared digital account used to hold securities such as stocks and bonds. It can include up to three holders: one primary holder and up to two secondary holders.
All holders can access and manage the account, and every transaction requires consent from each person. This type of account may be useful for families or spouses who want to invest together and simplify long-term asset management and estate planning.
Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Fixed Deposit schemes are regulated by the Reserve Bank of India. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
