In India, before 1994, trading used to be done using the physical outcry system.  In this form, brokers used to call out the prices of the shares and when two brokers found a mutually acceptable price, the share certificates would be exchanged for a cheque. However, with electronic screen-based trading, physical share certificates have been replaced by electronic records. Now trading between equity shares, mutual funds, derivatives, bonds happens online in a transparent process without any manual intervention. This is done through a demat account.

So, what is demat account? It is an electronic repository of the investments made by the person. To put it simply, it is like a bank account. It is used to store all the electronic financial investments done by a person. The account holder can check the balance and the current market value at any point of time. Past historical transactions can also be checked.

The demat account is credited whenever any investments are purchased. The account is debited when any investments are sold. Once you know demat account opening, you can figure out where to open this account.

How to open a demat account?

The procedure to open a demat account is very simple. You can open demat account both online or offline. You need to choose a depository participant with whom you can open your account. In India, there are two depositories, Central Depository Services (India) Ltd or CDSL and National Securities Depositories Ltd or NSDL. The depositories provide dematerialization services. There are different agents registered with NSDL and CDSL who provide demat services to individuals. You can open an account with any depository participant from the list.  

To open the account, you need to fill up an account opening form. You can do this either online or offline. You will need to submit the account opening form along with the following documents:

  • Proof of identity (PAN card, Aadhar card, Passport, Driving License, Voter ID, Bank passbook, Government employment ID card)
  • Proof of Address (Passport, Aadhar card, Driving licence, Voter id, Electricity bill, Telephone bill, Gas bill, Home loan papers, Home ownership papers, Lease rental agreement, Ration card)
  • Proof of income (ITR V for the previous 3 years, Balance sheet and profit and loss account for the business, audited accounts for bigger entities, Form 16, Bank statement for the past 3 to 6 months)
  • Cancelled cheque for bank account linking and confirmation
  • PAN card copy with attestation
  • Depending on the depository participant, between 1 to 3 passport size photographs
  • If you are an NRI, then power of attorney given to resident Indian along with required identity proof and address proof of the resident Indian. 

Once these documents are submitted, you will have to sign an agreement with the depository participant. The agreement specifies the rights and duties of the depository participant. It will contain information about demat account charges like annual maintenance fees, transfer fees for mutual funds, rematerialization fees, account freeze fees. 

Once the application is processed, the depository participant will give you your 16-digit demat account number. Once the demat account and trading account are opened, you can invest in the stock market. 

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