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Best demat account for beginners

If you’re new to investing in the stock markets, you may not know much about demat accounts. Well, a demat account is like a bank account for shares and other securities. Like a bank account, it credits shares to your account when you buy, and debits them when you sell. Since shares are no longer held in physical form, you will need a demat account to hold your shares. A demat account is used to hold your securities in a dematerialized or electronic form. You also need a demat account to hold certain securities like bonds and debentures.

What is a depository participant?

A depository participant, or DP, is an intermediary of a central depository which keeps a record of all the transactions. Central depositories include NSDL (National Securities Depository Ltd) and CDSL (Central Depository Services Ltd). DPs, appointed by these two depositories, can be stockbrokers, banks and other non-bank finance companies.

What’s best for me?

If you are a beginner, you have two choices – opening a demat account with a stockbroker or a bank. It would be more convenient if you opened what is called a three-in-one account with a bank or broker, which combines a bank account, trading account and a demat account. This makes for a seamless process. When you buy securities, the amount to pay for them is debited from your bank account, and the shares credited to your demat account.

You can also get a demat account through your stockbroking firm. For example, if you feel that a certain brokerage firm suits your needs, you can open a demat and trading account with it. To trade, you will have to deposit a certain amount with the broker.

Best option for few transactions

As a beginner, you may not carry out large volumes of transactions. In that case, there is a low-cost option available for you in the form of basic services demat account or (BSDA). It was introduced by the Securities & Exchange Board of India (SEBI) to reduce the burden on small investors.

The annual maintenance charge (AMC) is lower in these BDSA accounts. For equity, there are no charges for holdings of up to Rs 50,000. For holdings of between Rs 50,001 and Rs 200,000, you will have to pay Rs 100. For debt securities, there are no charges for holdings of up to Rs 100,000, and Rs 100 for holdings of between Rs 100,001 and Rs 200,000. Holdings above this amount will be subject to regular charges.

BDSA is cheaper compared to non-BDSA accounts for which you will have to pay between Rs 500 and Rs 800 per year. So if you don’t intend to trade in securities on a large scale, make sure you opt for a BDSA account.

Is it worth having a demat account?

A demat account is a mandatory requirement for investing in shares. Even if you don’t intend to trade in shares, it’s always a good idea to have a demat account. In the past few years, returns from equity have exceeded those from many other investment avenues, so at some point you will have to invest in shares if you wish to build a sizeable corpus. Besides, you will need to have a demat account if you plan to invest in certain debt securities like bonds or debentures.

Disclaimer: The contents herein mentioned are solely for informational purpose and 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.

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