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What is Demat Account, its Meaning, Type and Process

There was a time when shares and securities were held ‘physically’—in the form of certificates and sheets of paper. In 1996, the National Stock Exchange (NSE) introduced dematerialised accounts in India, and since then it has been working to make trading of securties more faster, convenient, efficient, and secure.

A demat account builds a core relation between a broker and a trader. Opening a demat account online is a must, along with a trading account, for you to enter the share markets for buying and selling the shares and other securities. To do this efficiently, you need to be aware of the concept of a demat account, trading account, and types of demat account.

What is a demat account?

A demat account holds all your securities, stocks, shares, bonds, etc. in an electronic format.

Demat is a short form of the word dematerialisation, which refers to the process to converting securities into an electronic form. Before the introduction of the demat account in 1996, traders had to deal with the inconvenience of using physical copies of shares certificates that had to be verified at each point of transaction. Trading was tedious and a slow process owing to the cumbersome process of managing securities. With the introduction of demat account, these problems were eliminated to a great extent.

What is dematerialisation?

Ever since the launch of demat accounts in India, most people prefer to store their shares in the electronic form instead of physical share certificates. As per the Securities and Exchange Board of India (SEBI) guidelines, companies can now issue shares only in the electronic format and not as physical certificates.

Dematerialisation, which is the process of converting your shares and stocks into an electronic form, is done by transferring your shares into a demat account. Just like a bank account can hold your money, a demat account holds your securities in an electronic format.

Different types of demat account

Demat accounts can be of several types depending on an investor’s needs.

1. Regular Demat Account:

The regular account is for any Indian resident willing to open a demat account for trading in securities within India.

Resident citizens of India use regular demat accounts. The National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) provide regular demat accounts to individual investors with the help of intermediaries, such as stockbrokers and depository participants (DP).

2. Repatriable Demat Account:

This is for the non-resident Indians who wish to open a demat account for trading in Indian securities. The repatriable version allows a trader to transfer funds to another country. Thus, it would help if you had an association with the NRE (non-resident external) bank account to proceed further with the dealings.

A repatriable demat account provides NRIs with the facility to transfer their wealth overseas.

3. Non-Repatriable Demat Account:

The non-repatriable demat account is specifically for the NRIs (non-resident Indian). The funds in these accounts cannot be transferred to other countries the way it can be done in the repatriable account. To use this type of account, the applicant needs an association with an NRO (non-resident ordinary) bank account.

A non-repatriable demat account is similar to a repatriable demat account, as in it also serves non-resident Indians. However, in this account, NRI does not have the right to transfer his funds abroad.

Additional Read: Features and benefits of a demat Account

Various types of trading accounts are as follows:

1. Equity Trading Account

An equity trading account is a go-to account for trading in options, futures, and equities. Through this account, currency derivatives can also be traded. However, the equity trading account cannot be used for trading commodities, so a different type of account exists for this purpose.

An equity trading account consists of your trading and demat accounts. These two accounts are linked to your savings bank account for transferring funds. Today, firms provide an integrated and fully digitised platform for opening equity accounts.

2. Commodity Trading Account

As the name suggests, a commodity account allows an investor or trader to trade in commodities, such as coffee, wheat, bananas, etc.

An investor must sign up for a commodity trading account with a broker to trade in commodities. This type of trading usually involves futures and options of products, such as agriculture, minerals, and precious metals.

Benefits of opening a demat account with ICICI Direct

To open a demat account, you need to register yourself with a depository participant. It can be a bank or a stockbroker with a license to open a demat account for its customers. ICICIdirect is one of the best stockbrokers in India that facilitates 3-in-1 demat accounts to ensure convenient investing.

Below are the benefits of opening a demat account with ICICIdirect:

1. 3-in-1 account

With ICICIdirect, you can open a 3-in-1 demat account. It means that a single account can act as your demat account, trading account, and banking account, and you don’t need to open these accounts at different places.

2. 100% online account opening facility

With ICICIdirect, you can open a 100% online demat account without moving out of your home or office. All you need to do is just upload the required documents on our website and your demat account will be ready for investing in just a few minutes.

3. Free account opening

You don’t have to pay anything for opening your demat account with ICICIdirect as it’s completely free. Additionally, you will get a free brokerage of Rs. 500 to start your share trading journey.

4. Multiple brokerage plans

You can choose from a range of brokerage plans as per your requirements. Our brokerage plans are tailor-made to suit different types of investors, including rookie, seasoned, and HNIs.

5. Award-winning research and stock recommendations

Since we are a full-service broker, you can also get stock recommendations and investment advisory services by opening a demat account with us. We’ve won numerous awards for our stock market research over the years, including the Thomson Reuters Analyst Award in 2017, and the Starmine Analyst Award in 2015, 2014, and 2011.

Tips to choose the best demat account for you

As an investor, you can purchase securities from the stock markets and store them in your demat account. A demat account will hold these securities in an electronic format until you decide to sell them again. Here are the tips to choose the best demat account:

1. Try to go for a 3-in-1 account

A 3-in-1 account is the one that can act as a demat account, trading account, and banking account. You will need all three accounts to invest in the share market. Although there is no statutory compliance to have all three accounts from a single broker, opting for a 3-in-1 account can ensure a greater degree of convenience.

2. Demat account procedure should be online and simple

Nowadays, most stockbrokers offer an online demat account opening facility. This ensures that you can open your demat account from the convenience of your home or office. Also, you can start trading within a few minutes by opening your demat account online.

3. Compare the brokerage charges

Always compare the brokerage charges of a stockbroker before opening a demat account with it. It should be as per the market standards. Don’t always go with the stockbroker that’s offering the lowest brokerage but also look at the services it is providing.

4. Ensure that the trading interface is user-friendly

It’s very crucial to ensure that the trading interface of your stockbroker is user-friendly. Else, you may lose some precious seconds and a big chunk of money while conducting trades.

5. It’s better to go with the full-service brokers

It’s better to go with the full-service brokers while opening your demat account since they also provide investment advisory and stock recommendations. On the other hand, discount brokers provide only the trading platform and not the advisory services.

Additional Read: Checklist of Demat Account Charges and Fees

Conclusion

Now that you know what is a demat account and how dematerialization works, you can go ahead and open a demat account for yourself. However, it’s crucial to understand your needs and objectives of opening a demat account and choose the right stockbroker.

With ICICIdirect, you can open a 3-in-1 demat and trading account for free and start investing in the stock markets seamlessly. Plus, you can choose from multiple brokerage plans as per your requirements.

FAQs

1. What’s the use of a demat account?

A demat account holds securities in an electronic format, making the overall trading experience easy and secure.

2.  Is a demat account free?

Most brokers provide demat accounts at zero opening charges. However, there will be other charges, such as annual maintenance fees, trading fees, etc.

3. What are the charges of a demat account?

It varies from one stock broker to another. They can charge you up to Rs. 1,000 to open a demat account and then you might have to pay annual maintenance charges. With ICICIdirect, you can open your demat account completely free.

4. How long does it take to open a demat account?

Usually, it should not take more than 48 to 72 hours to open a demat account. Some stockbrokers even allow you to open your demat account online and start investing within a few minutes.

5. Which demat account type is best?

It depends on an investor’s needs and location. Resident citizens of India use regular demat accounts. On the other hand, NRIs can use repatriable or non-repatriable demat accounts based on whether they want to transfer their funds abroad or keep them in India.

6. How to open a demat account?

You can open your demat account online by following a few simple steps:

Step 1 – Select your depository participant (it can be a bank or a stockbroker)

Step 2 – Fill in an online demat account opening form

Step 3 – Upload the required documents

Step 4 – Wait for the completion of the verification process

Step 5 – Get your BO ID number and start using your demat account for share trading

7. Is a demat account safe?

The introduction of demat accounts and electronic trading has made investing safe to a large extent. All the transactions leave an electronic trail that is traceable by regulatory authorities. However, it is wise to do your research and opt for a credible broker/depository participant.

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.  Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. 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.

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