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Demat account for beginners

You must have heard the terms like Demat or dematerialisation several times while reading about the stock markets and capital markets. Let's try and understand the concept of dematerialisation, the definition of a Demat account, its use, and the prerequisites for opening an account.

What is a Demat Account?

· A Demat Account provides the facility of holding shares and securities in an electronic format. The shares are bought and held in a Demat account during the online trading for the users' convenience. It holds all the investments you make in shares, government securities, exchange-traded funds, bonds, and mutual funds in one place.

· In India, the depositories such as National Securities Depositories Ltd (NSDL) and Central Depositories Services Ltd (CDSL) provide depository services which in turn are made available to you through another set of SEBI registered entities called Depository Participant (DP). Thus, it can be said that the depository participants or stockbrokers facilitate the depository services to you and me.

· The Demat account charges may vary for each DP depending upon the volume held in the account, type of subscription, and terms and conditions between the parties.

What is Dematerilisation?

· Till the decade of mid-1990s, Securities and shares were exchanged through the physical exchange of share certificate & securities in paper form.

· In the year 1996, the Depositories Act, 1996 came into force. Post the Depositories Act's enactment, the physical exchange of securities was replaced with the exchange of securities in electronic form. This transformed the securities markets in India.

· Out of many benefits of the dematerialisation, settlement of securities takes place at a tremendously faster speed that is T+2 days (Trading day plus two trading days after that) in some cases. Before dematerialisation, it used to take as long as T+14 days (trading day plus 14 trading days).

· The process of dematerialisation helps in converting the physical share certificates into electronic form. This is a lot easier to maintain, and you can access the shares from anywhere throughout the world 24/7. The purpose of dematerialisation is to eliminate the need for you to hold physical share certificates and facilitate seamless tracking and monitoring of holdings.

· You can start trading online by opening a Demat account with a Depository Participant along with the trading account, which is linked with your bank account.

What is the Benefit of opening an online Demat account?

Lower Risks:

Physical securities may be risky due to thefts, losses, or damages. In addition to that, bad deliveries or fake securities were significant hurdles in trading in securities. These risks are eliminated with the opening of an Online Demat account, which provides you with the option of holding all the investments in electronic form.

Reduced Costs:

Physical certificates involved additional costs such as stamp duty, handling charges, and other such expenses. These extra expenses are eliminated with Online Demat accounts.

Reduced Time:

Due to the elimination of paperwork, the time required in completing a transaction is substantially reduced. The reduced time requirement enables you to make more purchases and sales of security holdings in a shorter time and with greater efficiency.

Ease of use:

Online Demat accounts are simple, fuss-free, and accessible. In today's day and age, they are a valuable tool for financial planning.

Abolition of Odd Lots:

With physical certificates, buying and selling were possible only in the specified quantities. In Pre dematerialisation world, it was not possible to buy and sell odd lots. Online Demat accountseliminate this issue as now even a single share can be traded in the market.

Corporate Benefits & actions:

If the companies offer dividends or bonus shares, these benefits are automatically available to the Demat account holders. Besides, corporate actions like bonus issues, right shares, or stock split are automatically updated in all the shareholders' Online Demat account.

What are the documents required for opening a Demat account?

1) Proof of Identity (POI) (E.g.: Driving license)

2) Proof of Address (POA) (E.g.: Passport)

3) Proof of Income (For trading in derivatives such as F&O) (Eg.: Copy of Income Tax Return Acknowledgement)

4) Proof of Bank Account (E.g.: Cancelled cheque)

5) PAN Card

6) passport size photographs

We have seen the quantum shift in the securities market with the introduction of Demat in terms of efficiency and ease of use, coupled with a trading account linked to your bank account. Armed with this trinity, are you ready to dive into the pool of potential profits in the securities markets?

Disclaimer-

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.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.

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