loader2
Partner With Us NRI
Download iLearn App

Download the ICICIdirect iLearn app

Helping you invest with confidence

Open Free Demat Account Online with ICICIDIRECT

Key things to know about a Demat account

12 Jan 2023 0 COMMENT

If you've only recently started trading stocks, you might not be familiar with the pre-Demat account era, when shares and securities were held physically in the form of certificates. Imagine hundreds of traders hanging on to their stocks while thousands of reams of paper are spread out across them.

Although now we've moved to a paperless period—the Demat era—thanks to the internet and computers. But what is a Demat account, what is its use, and how to open one? Well, a Demat account is a platform to digitally store your securities. Investors can hold their equities and other financial securities in an electronic form in a Demat account instead of having to deal with annoying paperwork.

Let’s know the Demat account meaning, the benefits of a Demat account, the types of a Demat accounts, and the safety guidelines associated with using a Demat account.

What is a Demat Account?

Demat stands for Dematerialization. It is the process of converting physical share certificates and debt instruments to an electronic format. When shares are dematerialized, they are converted to a digital format and stored in Demat accounts.

The basic goal of Dematerialization is to ensure that investors can trade and invest in real-time using digitally held shares in their Demat account rather than having to keep physical shares.

You must approach a Depository Participant (DP) to register a Demat account in India if you want to Dematerialize your securities. The DPs use two depositories, the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), to open Demat accounts in India.

Benefits of a Demat Account

Now that we know what is a Demat account, let’s talk about why you should open one and the benefits associated with it.

  • Cost-effective: Cost savings is a clear advantage of internet or online transactions. Likewise, if you decide to use a Demat account online, you can save costs such as stamp duty and other processing fees required for physical bonds. The only fee associated with a Demat account is the brokerage fee.
  • Saves Time: With a Demat account, it takes very little time to buy and sell shares. The shares digitally stored in your demat account can be bought and sold quickly through a Trading account that is linked to your demat account. This improves the liquidity in the shares and the market. In contrast, the procedure of transferring actual shares was extensive. Since the securities are maintained in a Dematerialized form, online transactions can be completed swiftly.
  • Convenience: A Demat account makes it easier and more convenient for you to track and manage your financial securities from anywhere in the world. You receive periodic statements of your account balance which makes it more accessible.
  • Safety: With physical shares or bonds, there is a high chance of fraud. But when you use a Demat account, you have all the authentic information necessary in your records. This safeguards you from the risk of forgery of documents. Additionally, there is a high chance of losing documents when bonds and shares are in physical form. So, storing shares online is a much better and safer option because it lets you keep a digital record of your share forever.
  • Loan Facility: In addition to using it as a safety deposit for your funds, you can use the securities kept in your Demat account to obtain different bank loans. If you want to borrow money from your bank, you can use the securities as collateral.
  • Auto Updating of Corporate Actions: If the company whose shares you hold in the demat account announces any dividend, bonus issue or stock split, it gets automatically updated in your demat account and the benefits get transferred seamlessly.
  • Diversification: A Demat account holds multiple assets such as bonds, mutual funds, government securities, exchange-traded securities (ETFs), etc, allowing you to simplify your portfolio diversification.

Types of Demat Accounts

In India, there are three different kinds of Demat accounts available:

  • Regular Demat Account: Indian resident investors need to open a regular Demat account. It is ideal for those who want to trade only equity shares. The shares purchased get credited to your demat account, while the shares sold get debited from the demat account. It is not necessary to have a standard Demat account if you intend to trade futures and options (F&O). This is because F&O contracts are settled before the expiration date and do not require to be stored.
  • Repatriable Demat Account: Non-resident Indians (NRIs) willing to invest in Indian stock market need to open Repatriable Demat Accounts. However, NRIs looking to open a Repatriable Demat Account must possess a Non-Resident External (NRE) bank account. When you are no longer a resident of India, you need to close the Demat trading account you had while you were a resident. After that, you can move the shares to an NRO Demat account, which stands for ‘Non-Resident Ordinary.’ Repatriable Demat Accounts allow NRIs to transfer their funds to various foreign countries.
  • Non-repatriable Demat Account: Again, this form of Demat account is for NRIs, and an NRO bank account must be connected to the Demat account. The only distinction between this and a repatriable account is that you can't send money to another country.

In 2012, SEBI launched a new form of Demat account known as the Basic Services Demat Account (BSDA). This account is similar to a regular Demat account, with the exception that it requires much less investment. The idea behind starting the BSDA was to help small investors who are not willing to invest regularly in the stock market.

How to Open a Demat Account?

You can open a Demat account from the comfort of your own home. The entire procedure is automated and may be finished in less than ten to fifteen minutes using only a mobile phone. Here is a step-by-step guide on how to open a Demat account:

  1. Choose a depository participant with whom to open your Demat account. Consider the DPs standing, such as ICICIDirect, and its ability to provide the services you require.
  1. After choosing a DP, complete an online account opening form on the DP's website. You will first be required to enter basic information such as your name, phone number, email address, and residential address. You must also include your PAN Card information.
  1. You must provide bank information such as account number, account type, IFSC code, etc. Adding a bank account is required because it is used to credit dividends, interest, etc., payable to you by the issuer business whose shares you may hold in your Demat account.
  1. Upload your photo along with your address proof and proof of identification documents to complete this stage.
  1. Since the entire procedure is digital, there is no need to wait for a DP agent to arrive and validate your identity. Simply film a brief video of yourself reciting the provided script (your name, home address, PAN information, etc.) and upload it to finish the process.
  1. The majority of DPs will allow you to digitally sign your application using an Aadhaar-linked cell phone number. It saves time, is safe, and minimizes paperwork.

Once you have completed these procedures, you can submit your application. Shortly after, you will receive the account information such as your account number and login credentials to access your account.

Important Things to Look For Before Opening a Demat Account

Now that we know the importance of a Demat account and how to open one, let us also learn about some important things to look out for before opening a Demat account.

  • Service Charges: Understanding the costs associated with opening and using an online Demat account is an important factor. One of these costs is the Demat account opening fee, which varies depending on the provider. There is also an annual maintenance fee for online as well as other services that may be used with the account during the year. Some brokerages even charge a fee for each trade, but you can get a discount on the brokerage fee.
  • Ease of Setting Up: These days, starting a trading account online is simple and hassle-free, and many DPs provide a quick, paperless solution to open a Demat account online. Always select a depository participant who makes opening an account simple and does not require physical contact.
  • Security: Your Demat account may include stocks worth your entire life savings. Due to the constant movement of data across servers, the DP must implement the highest level of security and encryption for your Demat account. Any unauthorized or unethical attack on your data and information can create difficulties. Therefore, make sure a DP offers top-notch encryption before selecting it for your Demat account.
  • Authenticity: Before opening a Demat account, you must check that the chosen broker is reputable. Take the time to research the DP's history, including the number of clients they serve, the length of time they've been in operation, and the number of locations they have. Additionally, confirm that the broker is registered with SEBI, as this makes filing a complaint easier in the event of fraud or a lawsuit.
  • Brokerage Service: SEBI regulations allow you to choose your Demat provider and broker. You may choose to have dual accounts with the same company or with two separate companies. However, obtaining both of these solutions from the same organization makes investing simpler. Additionally, this improves the efficiency of transactions because a single organization can easily handle responsibilities such as issuing Debit Instruction Slips and addressing trading-related issues.

Conclusion

There are many benefits to having a Demat account, and it is the easiest way to buy and sell shares, and securities. Not only does it cut down on paperwork, but it also speeds up the time it takes to settle transactions, saves money, and makes investments safer to hold.

Frequently Asked Questions

Is the Demat account a bank account?

No, but a Demat Account works just like a bank account. When you buy shares, they get added to your demat account and when you sell shares, they get debited from your demat account. One of the best things about having a Demat account linked to a bank account is that you can move money from your savings account to your investment portfolio more quickly.

Why is a demat account used?

A demat account is used to hold securities in a dematerialised or electronic format.

Is the Demat account free?

Most brokers have zero opening charges for demat accounts. However, there may be other charges like annual maintenance fees, trading fees, etc., which vary from broker to broker.

Are demat accounts safe?

Demat accounts and online trading have made investing safe and secure. It is advisable to first research the credibility of the broker or depository participant.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.