Demat Account, a short form of saying Dematerialized Account is a type of banking account which dematerializes the paper based physical shares. It can be considered as another form of a personal account where people keep shares instead of money and cheque. A savings account holds your money electronically and a demat account holds your stocks electronically. A demat account can be opened with no balance of shares.
As per Securities and Exchange Board of India rules, one can purchase shares up to 500 in physical form. But it mandates demat account for share trading above 500. Demat account allows you to buy or sell and transact shares in safe, secure and convenient way without making any delay and paperwork.
Depositories and Depositary Participants :
For a tyro stock trader, it is necessary to be aware about the terms Depositary and Depositary Participants. A depository is a place where the stocks of investors are held in electronic form. There is only two depositories in India, The National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). Under the arrangement, the Depository acts as registered owner of the securities in electronic form in the books of issuing company and the client will be the beneficial owner. The Depositary Participants are the agents governed by Depositories through which one can operate the demat account. Depository participants are mainly banks and brokers. There are over a 100 DPs in India.
How to open a Demat Account?
Opening a Demat account is as simple as a bank account opening. You can open a Demat account with any registered depository participant (DP). The first step of opening an account is to fill up an account opening form. Standard Agreements are to be signed by the Client and the DP, which details the rights and obligations of both parties. The charges for account opening, annual account maintenance fees and transaction charges vary between DPs. The client will be provided with an account number called BO ID (Beneficiary Owner Identification Number).
Who can open a Demat account?
Any individual or corporate can open a demat account. It is possible to open more than one demat account in identical names. A demat account can be opened in more than one names but can be operated only for dematerialization of shares held in the same combination. No shares can be credited by purchase or transferred from any other account. Once a demat account has been started, it is not possible to change the account name. In such case a new demat account needs to be opened in the changed name, securities are to be transferred from the old account to the new account and the old account needs to be closed. Even though a power of Attorney holder cannot open a demat account, it is permissible to be operated by both the client and the POA holder.
The different categories of accounts that can be opened under an individual demat account are Ordinary Resident, Hindu United Family (HUF), Non Resident Indian - Repatriable, Non Resident Indian- Non Repatriable, Margin , Promoter, Others. The different categories of accounts that can be opened under a corporate demat account are Body Corporate, Bank, Financial Institution, Foreign Institutional Investor, Overseas Corporate Body & Others.
Documents Required for opening a Demat Account:
The documents required for opening a demat account is PAN Card, Voter's ID Card, Applicant's Passport, Ration Card, Driver's License, Photo Credit Card, Employees ID Card, Bank Attestation, IT Returns, Electricity/ Landline Phone Bills, a signed passport size photograph etc. All the documents listed above are not mandatory. PAN card is a must for opening a demat account.
Demat account holders need not pay stamp duty posted in case of physical shares.
It enables quick ownership of securities resulting in increased liquidity and makes the processes like pledging and hypothecation of shares much easier.
Demat account holds portfolio of shares in electronic form and obviate the need to hold shares in physical form.
This account is very safe, secure and convenient for trading and investments.
This makes a speed-e transactions in stock trading.
Demat account eliminates the risk of loss, forged transfer, bad delivery and fake certificates in the share transaction.
Nomination facility is available.
Who can be a nominee?
Nomination facility is available in Demat Account. The account holder(s) has to provide nomination details or given a declaration. Individuals, having/opening demat accounts, either, singly or jointly with one or two joint holders can appoint nominee. A nominee shall not be a Society, Trust, Body Corporate, Partnership Firm, Kartha of HUF or a Power of Attorney holder. If the account is held jointly, all the joint holders are required to sign the nomination form. Nomination once given can be changed / deleted as and when required. Only one individual can be appointed as a nominee for a demat account. A minor can be nominated. In such case the beneficial owner should provide the name and address of the Guardian of the minor nominee.