Everything You Need to Know About Owning a Demat Account in India

It was in 1997 that Indian stock markets switched over to Demat accounts. Before that, stocks and shares used to be exchanged via physical receipts called certificates, which involved lengthy paperwork and took up a lot of time.

Demat accounts allow the investor to hold securities in an electronic form, letting the investor buy and sell not only shares and stocks but other products conveniently without the need for any sort of paperwork.

A Demat (short form of Dematerialised) account holds all the investments an individual makes, be it in shares, exchange-traded funds, bonds, mutual funds, etc., in one place.  If one wants to invest in stock markets or Initial Public Offerings (IPO), it is the primary and utmost requirement that he/she open a Demat account. It makes the entire process of share trading easy, secure, and speedy.

Learn everything about a Demat account in detail here at Share India.

Why Do You Need to Open a Demat Account?

According to a circular passed by SEBI, a person can hold shares in physical form, but the transfer of shares is only possible after dematerialisation. 

The process of dematerialisation has made it easy to buy, sell, or transfer shares and, most importantly, do it securely through an electronic Demat account.

Hence, opening a Demat account has become a necessity of the day, especially to trade in India’s stock exchanges. Demat accounts save time and offer the user a seamless and straightforward experience.

The conversion of securities into different formats happens in no time. By giving instructions to your depository participant (DP), you can initiate dematerialisation formalities, i.e. convert the physical share certificates into electronic form. The collateral amount in the Demat account, which includes additional funds or securities, can serve as a valuable asset to cover margin requirements and trading positions while ensuring a more secure and efficient trading experience through electronic means.

Demat Account in India: Understanding the Basics

Take a look at three crucial terms in this context for a better understanding of Demat accounts in India.

Dematerialisation: It is a process that facilitates the conversion of share certificates from physical to electronic form. Shares held thereafter are easier to manage while providing more accessibility from anywhere around the globe. Dematerialisation also allows you to monitor and track your holdings seamlessly on the go.

Depository participant: It acts as an intermediary or agent of a central depository and provides namesake services to investors and traders. India currently has two central depositories registered with the apex trading and investment regulatory body—the Securities and Exchange Board of India (SEBI):

• NSDL (National Securities Depository Limited)
• CDSL (Central Depository Services Limited)

A depository participant must, therefore, be registered with either of these two licensed operators to open a Demat account.

Unique 16-digit client ID: Each Demat account is assigned a unique 16-digit client ID that acts as the investor’s identity. The first eight digits of the ID represent the depository participant, while the last eight digits act as a unique identification for the investor, facilitating the sale or purchase of shares and securities.

Earlier, holding shares and stocks in physical form was a challenging task, with chances of them getting misplaced or damaged. With dematerialisation, this safety concern has been addressed to a big extent.

A Step-by-Step Guide on How to Open a Demat Account

Opening a Demat account is quite a straightforward process. This step-by-step guide can help put things in perspective:

Step 1: Choose a Depository Participant (DP)

Choosing a depository participant (DP) is the first step to opening a Demat account. In India, banks, stockbrokers, and online investment platforms offer DP services. While choosing a DP, it is advisable to go for a service provider whose services and features match your needs and requirements.

Step 2: Submit Demat Account Opening Form

Visit your DP’s website and fill out the online Demat account opening form for opening a Demat account. Many depository participants like Share India offer the ability to open both trading and Demat accounts.

Step 3: Fulfil KYC (Know Your Customer) Norms

Once you have duly filled out the Demat account opening form, you will be asked to fulfil the Know Your Customer (KYC) norms. This would require you to submit scanned copies of KYC documents such as your identity proof, address proof, bank account statement, and income proof.

The documentation involved in opening a Demat account is minimal. This makes it easier for new applicants to see the process through from start to finish without any hassles.

Documents required are:

• Identity proof: A copy of your PAN card with your photo
• Address proof: A copy of any one of the following documents shall serve as proof of your residence.
  • Voter’s identity card
  • Registered lease agreement
  • Driver’s license
  • Passport
  • Aadhaar card
  • Landline telephone bill
  • Electricity bill
  • Apartment maintenance bill
  • Copy of your insurance
  • Ration card
  • Gas bill
  • Bank passbook or account statement (not older than 3 months from the date of receipt of documents)
• Bank account proof: A copy of your bank account passbook or bank statement (not older than three months)
• Proof of your income: A copy of your latest salary slips or your Income Tax Return (mandatory for currency and derivatives segment)

Step 4: Go through the Verification Process

To carry out In-Person Verification (IPV), the investors must produce the original copy of their ID and residential proof they have submitted electronically to the fund house.

Earlier, the investors needed to appear in person at the office, or somebody would visit the investors at their workplace or home. But now, the process is more straightforward as you can do a live authentication via video conferencing. For this, you must have a fast Internet connection.

 The officer might ask you questions regarding your documents. If they find the answers contradictory or a mismatch of documents, they can cancel your application.

Step 5: Sign the Agreement Copies

Upon completion of IPV, you will be asked to sign an agreement with your DP electronically. This agreement generally contains all the duties and rights of the depository participant and the investor.

Step 6: Get Your BO ID Number

Once this is done, your DP shall proceed to process your Demat account opening form. Upon approval of your application, you will be provided with a unique Beneficial Owner Identification Number (BO ID). This BO ID is used to access your Demat account.

Things to Remember while Opening a Demat Account

Before you go ahead and open a Demat account with a depository participant, you need to keep in mind certain essential pointers. These are:

Link your Demat account to your trading account:

A trading account is necessary for buying and selling shares in the stock market. Without it, there isn’t much use for a Demat account except to hold your financial assets. Therefore, it is a wise idea to link both of these accounts when you’re opening a Demat account.

Pro Tip: When you opt for Share India as the depository participant, you get access to both Trading and Demat accounts under one roof.

Ensure that you’re aware of all the Demat account charges:

Before submitting your Demat account opening form, always read through the statement of fees and charges. Being aware of the charges upfront ensures that you are not caught unawares once you’ve begun trading.

Fill in your details correctly:

Remember to double-check the details in your Demat account opening form before submitting it. This way, you can make sure that there aren’t any mistakes or fields left unfilled. Errors like these could lead to your application getting rejected. To ensure that your details are all correct, you could also enlist the help of a third person to verify your form before submitting it.

File your nomination:

Many people tend to miss this step while opening a Demat account. It’s not a good idea to put off filing a nomination because you might forget to do it in the future. Having a nominee for your Demat account is critical since it makes the process of transmitting shares much easier in the future.

To truly make the most of your access to the stock market, you require a depository participant that offers state-of-the-art features and dependable support.

Through a single Demat account on Share India, you can trade in a variety of instruments and options like equities, derivatives, IPOs, mutual funds, and commodities, among others.

Get your Share India Demat Account in just a few clicks – start here.