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How can I buy shares without demat account?

Can you buy shares without a demat account? The simple answer is no. This is because share certificates are no longer issued in paper form. In 1996, The Securities and Exchange Board of India (SEBI) made it mandatory for all investors to open demat accounts if they wished to continue investing in the stock market. As such, the only way you can continue share trading is by opening a demat account.

Dematerialization was introduced as a means to streamline stock transactions. Before that there were only paper share certificates and huge amount of paperwork had to be completed, whenever stocks were bought and sold. As the stock markets grew in size, the paperwork increased with it. This lead to errors and frauds, and the authorities decided the only way forward was the dematerialization (`demat’) of shares i.e. conversion of physical share certificates to the electronic or digital form. Today, shares can be traded only in the demat form.

How does demat work?

Demat accounts are provided by entities such as brokerage firms and bank subsidiaries or group companies collectively known as Depository Participants. These DPs serve as the intermediaries between the customer and the two central depositories in India – The Central Depository Services Ltd (CDSL) and The National Securities Depository Ltd (NSDL). Opening a demat account with one of the DPs, enables you to hold your shares in the electronic format.

How to open a demat account?

As mentioned above, DPs include bank subsidiaries, stockbroking firms and non-banking financial firms (NBFCs). You can choose any one of these entities to open your demat account. Few banks and stock brokers also offer 3-in-1 accounts that combine banking, trading and demat services. Stockbrokers, too, can open demat account for you.

To open a demat account, you need to fill the demat opening form, and provide proof of identity and residence, as well as Aadhaar and PAN cards as per the official valid documents list. Demat accounts can be opened online through the DPs website or offline by visiting the DPs office/branch.

Demat charges explained

Most DPs waive account opening charges. There are two other kinds of charges involved in a demat account. One is annual maintenance charge, which can vary between ₹200 and ₹800 a year. Then there are transaction charges, which is a small percentage of the transaction. If you are not doing too many transactions on your demat account, you can get a basic services demat account, for which there are no annual maintenance charges for holdings below ₹50,000.

Difference between trading account and demat account

Sometimes people are confused between a demat account and trading account. It’s not enough to get a demat account; you need a trading account as well. While the demat account holds your securities in the digital format, the trading account enables you to conduct transactions like buying and selling the securities. As such, you cannot have a trading account without a demat account. Banks and brokers offer both trading and demat accounts.

Apart from holding shares, Demat accounts are also essential if you want to hold bonds, debentures and other such money market instruments. So, what are you waiting for?

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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