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Things to check before opening a Demat account

A Demat Account is crucial for trading in equities. It is equivalent to a bank account, which shows the buying and selling of shares. A Demat Account is easy to understand and read, but there are specific questions that you may have before opening a Demat Account.

  • Is there anything to be careful about while opening a Demat account?
  • What are the benefits or advantages of a Demat Account?
  • What factors do you have to consider while opening an active Demat Account?

Keeping the questions in mind, here are some points to consider while opening a Demat Account:

1. Make sure the Demat Account and the Trading Account are with the same broker:

Usually, the broker opens a Trading-cum-Demat account at once, so this question seems irrelevant. But sometimes, a broker may not have a DP license. In this case, you must ensure that once the shares are sold with the broker, the person is required to submit the debit instruction slip (DIS) to the broker on time. Not doing so results in bad delivery and, thus, losses.

When the DP and broker are the same people, the process is smoother. You can also opt for online trading and a Demat Account and give a power of attorney to the broker for debiting and crediting the Demat Account accordingly during transactions. Having both Rrading and Demat account with one broker saves you a lot of hassle.

2. Check how robust the Demat technology platform is

Many brokers offer access to the Trading Account and the Demat Account from a single platform. Due to this, the transaction procedure, including the transfer of proceeds, transfer of shares, and bank account funding, happens seamlessly. To make sure things are smooth, check beforehand whether the Demat technology platform is robust or not. Typically, the debit is reflected in the Demat Account the next day in case of sale of shares. In case of buying, the Demat Account reflects the credited shares on T+2 days.

3. Always calculate the related Demat charges involved

Account opening is just one of the many costs associated with the Demat Account. The annual maintenance charge, billed each year, is based on the value shares kept in custody. Apart from this, every time a share is sold and debited from the Demat account, the DP pays a charge to either CDSL or NSDL, which is also debited from your account.

Apart from this, the DP charges an amount if you request for a physical document, statement of holding/ transactions or duplicate statement to serve a proof. The DP may charge you a penalty if the DIS gets rejected due to technical errors.

4. Seamless booking, banking and custody

Broking activities, custodian and banking activities can work smoothly if the broker is also a bank. The factor is less significant in terms of essential requirements. The advantage of this is that the fund can be loaded via RTGS, UPI, NEFT or any other authorized payment gateway. But many brokers charge a nominal sum for letting you use the payment gateway, so it ideal to use the RTGS, UPI and NEFT for the same.

5. Ensure the quality of support services is high

A DP should be judged based on how they provide ancillary services. Time taken for dematerializing the shares, automation of corporate actions credited in the Demat Account, ability to deal with pledging, complaints, etc., all need to be considered.

Additional Read: Dos and Don'ts for a Demat Account

6. Complaints pending against the depository participant

This tells you how passionate and honest the DP is about its service standards. Having complaints against the DP is not a good sign. Ensure that the DP does not have any regulatory investigations or complaints against them.

Conclusion

Having a Demat Account is essential if you want to trade in securities in the Indian financial market. However, there are certain considerations to keep in mind while opening a Demat Account. Since you need both a Trading and a bank account to open a Demat Account, looking for a 3-in-1 facility may be useful. Additionally, if your DP is a bank, you have many advantages that come with it. Also make sure you check the DP’s reputation and service quality before you decide to open an account.

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.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. 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 are solely for informational and educational purpose.

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