What is a demat account?

Last Updated at: September 29, 2019
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A demat, or dematerialized, account simply holds shares in electronic form, and is a must for trading in stocks. You can’t buy or sell through a demat account. For that, you’ll need to go through a stockbroker. Just as having a bank account is necessary to deposit money at that bank or make payments, a demat account is necessary if you want to buy or sell stocks. Whereas your bank account shows money that is deposited and paid out of your account, the demat account records your portfolio. You will not receive any physical certificates showing that you own these shares. So a demat account holds the electronic listing of your shares.

How do I open one?
All demat accounts must be registered with a depository participant (DP). There are over a hundred of them, including most banks and some share brokers. You can get a list of registered DPs at the websites of the NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). Once you choose your DP, it’s as simple as opening a bank account. Charges for maintaining a Demat account differs with DPs. But you can compare rates at the NSDL and CDSL websites.

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Opening a DP account
1. You’ll first have to fill up an account opening form, and provide the DP with some introductory documents, such as address and identity proof.

2. You’ll also be signing an agreement with the DP, stating the rights and obligations of both parties. Attached will be the DP’s fee structure.

3. Once your account is functional, you will then be allocated a ‘Client ID’ account number, in addition to a ‘DP ID’, both of which need to be quoted while conducting business with your DP. The DP will provide you with periodic statements of your stock holdings and transactions.

4. Your DP will give you instruction slips for depository services, such as delivery instruction for trades. Keep these safely.

Advantages of Trading in Demat Shares:
1. Before demat accounts, shares weren’t transferred as easily for several reasons. There were differences in signatures, theft, problems with deliveries, among other things.

2. No stamp duty is charged when trading in demat shares.

3. Brokers charge lower brokerage fees because of less paperwork. ICICI’s annual fees go down to Rs.450, by Rs.50, if you just agree to receive all intimations via e-mail.

4. You will receive a status report from your DP, and there is a periodic inspection of its records.

5. No minimum balance is required.

How to demat shares
If you have some physical certificates and want to demat them, you have to fill up a Demat Request Form (DRF), which you can get from your DP. According to the NSDL website, you have to deface the shares by writing ‘Surrendered for dematerialisation’ across them. The DP will check to ensure that the DRF is filled accurately, and then forward it, along with the certificates, to the issuer. After dematerialisation, your depository account will be credited with the dematerialised securities.

Ideally select a DP which is an established financial market player — either a bank (public sector, private sector or foreign), or a financial institution or a full service brokerage.

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