Investing in securities is the only way you can grow your money. However, it requires sensibility and need to follow some rules and regulations. One of the ways to understand the stock market and its art and science is by knowing the concept of Demat Account.
Technology and digitisation have changed how we lead our lives. In fact, money-making activities have also changed drastically. These have benefitted us. Similarly, the stock exchange has evolved too. Stock trading has moved on from physical certificates to Demat.
History of Demat Account:
When Bombay Stock Exchange (BSE) came into existence in 1875, traders shouted the stock prices they wanted to buy and sell. The money was exchanged in the form of physical receipts called certificates. This led to substantial paperwork. Lengthy processes delayed settlements since the buyers and sellers had to deliver the documents to initiate the transfer process.
It was around 1996 when Demat Account became a popular concept. Physical certificates were converted into securities of similar numbers and credited to the Demat Account. This was the advent of Demat way of trading.
What is a Demat Account?
Investors open a Demat Account at the time of registering with an investment broker. The Account is known for trading purposes and to allow electronic settlements. All the investors who trade in stocks must hold a Demat Account as per the directive of SEBI. You cannot trade in stocks with Demat.
How does it work?
The Demat Account holds all your shares and investments in the electronic form. It includes stocks, bonds, Government securities, mutual funds, and exchange-traded funds (ETFs). Before opening an account, you should be aware of the processes of a Demat. The functioning includes:
- Depositories: There are two major depositories in the country that run the operations of Demat Account – Central Depository of Securities Ltd (CDSL) and National Depository of Securities Ltd. (NDSL). They hold your account details. Their functions are similar to that of a bank.
- Unique ID: Every Account has a unique verification number. This comes handy in many situations, i.e. you can use it for transactions or while trading as it helps companies to identify and credit securities to your Account.
- Depository participants: Only depository participants (DPs) can access the depository. They are the intermediaries between CDSL and the investor. DPs can either be banks or financial institutes who are authorised to offer Demat services.
- Portfolio handling: They carry all your holdings, and you can check your account status with all its details. This is because the Account gets updated each time you transact.
How to open a Demat Account?
You can open a Demat Account with no shares. Also, you do not have to maintain a minimum balance. The first towards opening the Account is finding a DP. Then, fill the form and submit it along with the necessary documents. You only require a PAN card while opening the Account. The remaining steps include:
- You will receive a copy of the rules and regulations, agreement terms, and the associated charges when you submit the application
- In-Person verification is a must. A DP staff will inquire the applicant to confirm the details mentioned in the form
- You are then provided with an account number. You can use this number to check account details online
You have to pay a maintenance fee for the Demat Account. This fee also covers the transaction costs. The charges depend on the type of DP you opt for. Some charge a flat fee while others charge based on the amount of transaction. There is a fee for converting the share to physical form and vice versa
- ArjitChalmela's blog
- Log in or register to post comments