If you are new to share market investments then you should know that you cannot proceed with your investments until you open a demat account. Demat is the short form of the word ‘dematerialised’ which simply means converting to electronic form. As such, the SEBI prohibits investors from holding their securities in physical form and if you wish to invest in the share market, you can only do so, through your demat account. Here are 4 things you should be aware of before you open demat account.
The different types of brokers
Share market investments are done online, through demat accounts. These accounts are offered by depository participants (DPs), who are authorised by the two main depositories in India; the National Securities Depository Limited and Central Depository Securities Limited. There are two types of broking firms with which you can open demat account – discount brokers and service brokers. The former carries out transactions in equities and derivatives as per the instructions provided by investors whereas the latter provides all facilities that discount brokers provide, along with additional services such as investing in securities like mutual funds, IPOs and insurance among other things.
How to open demat account
The process of opening a demat account is simple and straightforward. It can be done in 5 easy steps. They are as under
- Choose a good depository participant offering services and facilities that make share market investments easy.
- Visit the office of your chosen DP or use their online platform to open the account. You’ll be required to fill the account opening form and submit some documents.
- After filling the account opening form you need to submit the photocopies of the required demat account opening documents as mentioned in the account opening form.
- The DP verifies your documents and you are asked to complete the Know Your Customer (KYC) compliance formality before your account is opened.
- Once the KYC formality is completed your account is opened by the DP and you are provided with your demat number as well as your login ID and a default password, which you must change when you login the first time.
The DP opens your demat account and you can begin your share market investments in a safe and secure manner.
Documents for demat account
You need to provide the following documents to open the demat account:
- 2 recent passport size photographs
- A photocopy of your PAN Card
- A photocopy of your ID proof documents (Driver’s license, passport, Aadhaar, Voter ID are accepted).
- A photocopy of your address proof documents ((Driver’s license, passport, Aadhaar, Voter ID or utility bills are accepted)
- A photocopy of the first page of your bank passbook featuring details of your account number and IFSC code.
- A cancelled cheque of the account from which you’d be conducting your demat account transactions.
How the demat account works
Once the demat account is opened, funds from your savings account are transferred to your trading account, which is allotted a unique ID. The ID helps you buy and sell securities. Shares are purchased/sold through your trading account and deposited/withdrawn from the demat account. As such, you also need to open a trading account when you open the demat account.
Final word: With the demat account, you can hold all your market investments; be it shares, mutual funds, bonds, government securities or other money market instruments, securely under one account. Conducting trades through the account is easy, but before you open demat account remember to confirm the charges associated with share market investments and transactions.