As per the data at BSE and NSE, 99.9% of transactions take place electronically using demat accounts, in view of the convenient trading in the stock market. The popularity of demat accounts has scaled new heights with a significant increase of 13% in new demat accounts from the previous year, which was nearly 4 million. The supportive reason for this jump is the shift of Indians from traditional investments to alternatives like the stock market.
With the increasing demand, depository participants (DPs) offer the best demat services at the best possible costs to be in the competition, thus benefiting investors. As the market regulator, SEBI, has mandated opening a demat account to invest in the stock market, here are the easy steps to open a demat account. Before that, let us have conceptual clarity.
Dematerialisation
Demat account facilitates the conversion of financial securities (like shares, debentures, bonds, government securities, mutual funds etc.) in the electronic form from its physical form, known as the dematerialization process. Thereafter it is easier to manage and access them from anywhere.
Central Depository
A central depository is an organization registered with SEBI that provides facilities related to holding investors’ financial securities and transactions in securities electronically through a registered agent called depository participant. In India, two central depositories are National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL).
Depository Participants (DPs)
A depository participant is a registered agent with any of two or both central depositories in India to provide demat services. To interface with the central depositories for depository services, investors require a depository participant. A SEBI & stock exchange licensed and depository registered stockbroker can provide you services of demat and trading account.
Demat Services from Depository Participants
- Opening an online demat account.
- Conversion of physical securities into digital form, known as dematerialisation services.
- Conversion of digital securities into physical form, called Rematerialization.
- Maintaining the record of securities of investors.
- Process the settlement of online trades and over the counter/off-market trades.
- IPO application on the request of demat account holders.
- Receiving corporate benefits like bonuses, rights shares. Facilitating loans against dematerialised shares.
- Freezing of the demat Account on request of investors.
How to open a demat account
Small investors can sell their physical shares (maximum 500) through the additional trading window provided by the stock exchanges. It is a one-time facility for investors. For further trading services, there is the need for a demat account.
- As mentioned, you need to approach a Depository Participant to open a demat account. Choose a DP and fill up an online demat account opening form.
- You need to upload the soft copies of required documents for identity proof, address proof, PAN card, bank savings account statement, income proof, passport size photo.
- Keep all your documents handy in original at the time of filling the account opening form.
- Later, you will be required to put your signature on the agreement with your demat account provider DP. It consists of details of rights and duties of investors as well as DP’s.
- The DP will provide you with the schedule of demat charges also for their future reference.
- After the verification of documents, you will get your unique account number along with your user ID and password to be used for all future transactions.
This way, you can open your demat account online easily.
How to choose a depository participant
To choose a DP, determine your investing goals first and consider the following factors:
- Check the list of services provided by a DP along with levied demat charges.
- Look at the simple demat account process with minimal documentation.
- You can get a trial of the user interface of a trading platform provided by a broker.
- Choose a fast and user-friendly mobile application.
- Have a look at investing and analytical services with a broker.
- Review the customer services provided by the broker.
