Do's and Don'ts for Best Demat Account
Neeraj wants to invest in the stock market and opens a Demat Account. But he leaves the Demat Account unchecked for a long time. Moreover, he shared OTPs and the passwords with his broker when someone called him, stating that the caller is from his broker's office. After a few months, he found that he has invested in companies that he has never heard of. The broker denied knowing anything about it, and Neeraj realised that he was cheated. He decides to take up the matter with the police.
This situation could have been avoided if Neeraj knew what he should be careful of while handling the Demat account. So, what is it that we should be mindful of when we have a Demat account? Let's discuss.
What is a Demat account?
A Demat account is both a record and a statement of ownership of securities online. It's similar to a bank account. A Demat account simplifies and speeds up share trading and eliminates all of the risks and issues with physical share certificates, like theft and signature mismatch on the share certificates. You can use a Demat Account to store a wide range of investable securities, including stocks, bonds, units of mutual funds, ETFs (Exchange Traded Funds), and government securities. If you wish to invest or trade in the stock market in India, you must have a Demat Account .
But once you open a Demat Account, you should be mindful of how you access it and how frequently you review it. For this, let's discuss the 'do's and 'don'ts' of owning a Demat Account.
The Do’s of a Demat Account
- Scrutinise your transaction statement and double-check all debits and credits for accuracy. You should notify your Depository Participant or the CDSL/NSDL of any discrepancy or if an unauthorised debit or credit is reflected in your Demat Account.
- Take care of the Delivery Instruction Slips (DIS) book given to you. Request that your account number or client ID be pre-stamped.
- Enter information such as the ISIN (International securities identification number) and the number of securities to be bought or sold correctly.
- Please keep your contact details updated with your Demat Account service provider (also known as Depository Participant or "DP") and notify the DP of any changes in your address or contact details. If you are granting power of attorney to anyone, including your broker, to operate your Demat Account, be mindful of the scope of the powers being granted and do not give a general power of attorney as it would authorise the holder of your power of attorney to take any action concerning your securities and Demat Account
- To prevent debits and credits, use the freezing feature if you don’t use the Demat Account often. If you plan a vacation for an extended period, this feature will come in handy.
- When dispatching securities for Demat, keep track of the number of securities and the number of share certificates submitted for Demat conversion.
Additional Read: Points To Remember When Operating Demat Account
The Don'ts to Be Aware of:
- When mentioning the name and quantity of securities in the DIS slip, do not overwrite, cancel, or misspell. Double-check the ISIN code as well as the number of shares
- It's critical to remember that leaving signed DIS slips with friends while you're gone could jeopardise the safety of your Demat account.
- Paying Demat charges in cash is not a good idea. Generally, regardless of the amount, pay all charges by cheque or online transfer.
- Offline share transfers to another Demat account should only be done if you have negotiated the deal to buy or sell securities. Avoid transactions with unknown Demat accounts for off-market transfers. These transactions are closely monitored by the security market regulator (SEBI). If they suspect it is a fraudulent transaction, you may receive a notice asking you to explain the transaction
Additional Read: What is the procedure to open a Demat Account?
The Demat account is safe, provided you take care of the basic hygiene of Demat account safekeeping. Online storage and trading in securities have exploded in India due to increased transparency and ease of use. Therefore, it is prudent to exercise caution when engaging in stock market transactions.
1. What if I open a Demat Account and don't use it?
If you open a Demat Account and don’t use it for a while, it will become a dormant account after some time. If you want to use it again, you will have to reactivate by paying a reactivation fee.
2. What are the disadvantages of Demat Account?
Holding a Demat Account comes with the payment of certain charges. For instance, you will have to pay annual maintenance charges to keep the account active and also pay a fee to open the account. Moreover, it is important that you be tech-savvy to hold a Demat Account.
3. Can Demat Account be used everywhere?
Being an electronic account, Demat Accounts can be used from anywhere. All you need are your login details and an internet connection to access your account.
4. What if I don’t pay Demat charges?
If you don’t pay Demat Charges, your DP will send you multiple reminders to pay the same. If you still don’t oblige, then your account will be declared dormant.
5. Does demat account expire?
While a Demat Account doesn’t expire, it can become dormant if not used for a long time. Then if you want to reuse the account, you will have to pay a reactivation fee.