What is a Demat Account?
A Demat Account or Dematerialised Account provides the facility of holding shares and securities in an electronic format. During online trading, shares are bought and held in a Demat Account, thus facilitating easy trade for the users.
The Government of India introduced the provisions for a demat account through the Depository Act, 1996 to reduce fraud, improve market efficiency, and ease trading. According to the Securities Exchange Board of India (SEBI), a demat account is mandatory for anyone trading in financial securities.
Why Do You Need to Open a Demat Account?
- Electronic storage: A Demat account serves as an electronic repository to hold various financial securities like stocks, bonds, mutual funds, and Exchange Traded Funds (ETFs). It replaces the physical share certificates with electronic records.
- Trading and investing: To buy and sell securities in the stock market, you need a Demat account. It simplifies the process, making it convenient and efficient. When you buy shares, they are credited to your Demat account; when you sell, they are debited.
- Safety and security: Holding physical share certificates can be risky due to the possibility of loss, theft, or damage. A Demat account eliminates these risks by storing your securities in a secure electronic format.
- Simplifies ownership transfer: Through a Demat account, you can transfer ownership of securities.
- Easy monitoring: You can keep track of your investments in real time. It provides a consolidated view of your portfolio.
- Reduced paperwork: Managing paper-based securities involves a lot of paperwork. A Demat account eliminates the need for physical documents and the associated administrative work.
A demat account can hold the following range of securities:
- Government securities
- Exchange-traded funds
- Non-Convertible debentures
- Mutual funds traded on the stock exchange
You can think of a demat account as any other bank account: it shows your credits, debits, balances, transaction history, and is a place to maintain your finances electronically. There is no lower limit to the value of holdings you need to have to maintain the account. You can have a zero balance when you open the account, and even during the whole time you hold the account.
Demat Account Opening Process
Opening a Demat account is the first step towards starting an investor’s journey. But to start trading, you will need a bank account, Demat account, and a trading account. A Demat account is merely a deposit account used for holding securities for the time you trade. A trading account is necessary to make real transactions while the bank account is needed to store the cash used for tradindg.
Key Elements of a Demat Account
There are four key elements:
There are two authorised depositories operating in India i.e. Central Depository of Securities Ltd and National Depository of Securities Ltd. These two institutions electronically hold pre-verified shares.
2. Depository Participant (DP)
Any financial institution that is registered under SEBI can act as an agent of the Depository and conduct transactions for the investor. Any depository service has to be channelled through the DP. A DP can be a financial institution, a scheduled commercial bank, a foreign bank operating in India (RBI approved), a stockbroker, a clearinghouse, a state financial corporation, a share transfer agent, a non-banking financial company, etc. SEBI assigns every DP a unique code.
The investor is the individual is the owner of the securities. In this case, the person holding the demat account is the investor.
4. Unique ID
Every demat account has a unique 16-digit identification number which ensures smooth and transparent processing of securities.
Let us now look at the process of opening a demat account. The process is an easy one and can be done either offline or online.
How to Open a Demat Account Online?
The online process is a more convenient way of opening a demat account. Equipped with only a computer/laptop/tab/smartphone, you can open your demat account in a few minutes.
Here are the steps to open a demat account online:
- Head to the official website of your preferred DP (such as Angel One).
- Fill out the simple lead form asking for your name, phone number and city of residence. You will then receive an OTP on your registered mobile number.
- Enter the OTP and then enter the email where you will receive another OTP which needs to be entered.
- Enter your PAN details.
- Enter your bank account details
- Enter your KYC details via Aadhaar
- Upload a selfie and a signature
- Your work is almost done. You can complete the verification by e-Sign.
- Your demat account is now open! You will receive details such as demat account number on your email and mobile.
- Now that your demat account is open, you can activate your F&O trading facility and add nominees.
You can find a more detailed guide to opening a demat account on Angel One in our online user manual.
An investor can have multiple demat accounts. These accounts can be with the same DP, or with different DPs. As long as the investor can provide the required KYC details for all applications, they can open multiple demat accounts.
Note: In addition to your own demat account, you can open multiple demat accounts if each of them is with a different joint holder. However, the same combination of joint holders cannot be repeated with the same depository participant.
Eligibility of Investor
Any registered resident of India with the necessary documentation to prove it can open a demat account in India. With certain restrictions under SEBI, even non-resident-Indians can open a demat account.
A demat account can have up to three account holders; two joint account holders and one main account holder.
As per SEBI directives, it is mandatory to appoint a nominee for your demat account. The nominee can be changed or updated as per the wishes of the account holder.
List of Accepted KYC Documents
In order to open a demat account, you will require certain documents. You will need one proof of identity and one proof of address. Here is a list of accepted documentation that can serve as:
Proof of identity
- Driver’s license
- Voter’s ID
- IT returns
- Verified copy of electricity/phone bill
- PAN card
- Bank attestation
- A photo ID card issued by a central or state government body
- ICAI, ICWAI, ICSI, bar council etc, issued identification card with photograph
Proof of address
- Proof of possession of Aadhaar
- Driving License
- Voter ID
- NREGA Job Card
- National Population Register (NPR) letter
If the aforementioned documents do not contain the updated address, please provide any one of the below-mentioned documents as address proof:
- Utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill)
- Property or Municipal tax receipt
- Pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address
- Letter of allotment of accommodation from employer issued by State Government or Central
- Government Departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies and leave and license agreements with such employers allotting official accommodation
Note: You must submit updated officially valid documents with your current address within a period of three months of submitting the above documents.
How to Open Demat Account Offline?
Now that you know the function and benefits of a demat account, you may be inclined towards opening a demat account. Conveniently enough, opening a demat account is easy. It can be done in two ways: offline and online. Let’s take a look at how to open a demat account offline.
1. Select a Depository Participant
Once you have compared the services and benefits offered by different DPs, you can finalise the most suitable DP for your needs.
2. Fill the application form
You will need to fill out an application form for opening a new demat account. Along with this, you will need to submit a list of documents such as Identity Proof, Address Proof, PAN card, Bank details, your personal details, nomination details etc.
3. Verification process
You will be given a list of rules and regulations to ensure ethical and legal trading, and to clear any doubts you may have regarding holding a demat account and the different functions it serves. The DP will conduct an in-person verification of you and your KYC documents.
4. Final approval
Once your documents are verified, and the final formalities are completed, your new demat account will be opened. You will also be given the Unique Identification Number for your account.
Facilities Available with a Demat Account
A demat account is not only used for holding your financial securities; it also serves many other functions:
1. Investment transfer
The account holder can transfer all or part of their holdings to another person. The account holder only needs to fill a Delivery Instruction Slip with the accurate information and the seamless transfer of shares or other holdings can be carried out.
The investor can choose to convert their physical share certificates or other physical records of securities into electronic form through the process of dematerialising. To do this, the account holder has to fill out the Demat Request Form (available with every DP) detailing the information of the physical certificates and submit it along with the original certificates to the DP. Since every type of security has a different International Securities Identification Number (ISIN), the investor will have to separate forms for every security.
Once the DP verifies all the documentation, the DP updates the investor account, and the Depository makes a note of the changes.
Similar to dematerialising, a demat security can be processed into a physical record through rematerialising. For this, the investor needs to fill out a Remat Request Form with the ISIN.
3. Collateral for loan
The value of the security holdings can be used as collateral while applying for a loan.
4. Corporate actions
The securities in the demat account are linked with the company. In such a case, whenever there is a split in equity, a bonus is issued, or the company takes any other step concerning the shares or other securities, the investor is notified, and the security status is automatically updated, thanks to the centralised system. A demat account makes it easy for the investor to keep an eye on their investments.
5. Freeze the account
Available only when you have specific securities (and not zero balance) in your demat account, this facility can be used when the investor expects any untoward activities to occur. You can freeze your demat account similar to how you block a bank account or a credit card.
6. E-facility (eDIS)
To enable swift transactions, the NSDL allows the investor to make a transaction and then submit the e-slip to their respective DP.
Benefits of a Demat Account
The technological strides made in the last few years has led to a lot of benefits to holding a demat account:
- Traders can make a transaction at their convenience, making it convenient and time-saving.
- There is no tedious paperwork required to register transactions.
- No risk of theft, delays, or forging of physical copies of share certificates, bonds, etc. since the securities are stored in electronic form.
- You have a single integrated platform for holding debt as well as equity instruments.
- Automated credits made to registered demat account in case of bonus, splits, mergers, consolidations, etc.
- Eliminates need for multiple communications: every stakeholder is notified of the transaction through electronic alerts removing the need to contact the company, trader, investor.
- Address changes are updated with every company invested in by the investor through the Depository Participant.
- One single share can be bought/sold unlike earlier when shares were transacted only in lots.
- Removal of stamp duty costs which were otherwise associated with physical records of securities has led to significant reduction in the cost of trading.
Transferring Shares between Depository Participants
An investor may wish to transfer securities from one demat account to another. When different DPs operate the two demat accounts in question but on the same central depository, the investor needs to fill out the Intra Delivery Instruction Slip and submit the filled slip to their DP. However, if the DPs are on different central depositories then the investor will fill out the Inter Delivery Instruction Slip.
Executing the DIS on the same day as submission requires the investor to submit the DIS when the market is on. This also ensures that there is no delay in the execution of the transfer.
Please note, the broker managing the transfer may charge a transfer fee.
Difference Between a Demat Account & Trading Account
A demat account and trading account deal with the same elements- financial securities. However, while a demat account holds the securities, a trading account allows the investor to buy, sell, or trade-in these securities.
Trading using demat and trading accounts
Once you have both a demat and a trading account, you can engage in some online trading. Let’s take a look at two scenarios, to understand how your demat and trading accounts work in tandem to help you trade in financial securities.
- When the investor wants to buy
From your trading account, you can place an order to buy shares. Next, the order gets processed at the stock exchange level, and the shares you have bought get credited into your demat account.
- When the investor wants to sell
From your trading account, you make the order to sell an x amount of a particular security. The action gets carried out at the exchange level, and your demat account is updated to reflect the debited securities.
The trading can happen online or on call depending on the policy of your broker/firm. If you are requesting a transaction over the phone, have your account details ready as your broker will need to provide those details to complete the transaction.
The exchange verifies the account information provided before commencing the trade. It will ensure the availability of the shares you wish to trade, note the market price, and only then carry out the transaction.
It is advisable to link your demat and trading accounts before you start trading so that you don’t have to repeatedly provide the account details each time you make a transaction. Even better is to have your demat and trading accounts with the same firm to remove any additional stakeholders.
Types of Demat Account
There are three types of demat accounts which can be opened in India, depending on the residential status of the investor:
- Regular Demat account: This type of Demat account is available to all investors in India. You can approach any depository participant (DP) of your choice to open a regular Demat account. The difference between regular Demat account with the other types is that it doesn’t offer additional facilities like international fund transfer.
- Repatriable Demat account: NRIs who hold a non-resident rupee account (NRE) can open this type of Demat account. This account allows the international transfer of funds.
- Non-repatriable Demat account: non-resident Indians with a non-resident ordinary rupee (NRO) account can open this type of Demat account. However, this does not allow for international transfer of funds.
Things to Remember when you Open a Demat
If you are new to the market investor, you need to be mindful about certain essential pointers while you open a Demat. Here are some of those.
- Linking is essential: Opening Demat is only half of the job. To start trading, you need a trading account and must link it with the Demat. Without a trading account, Demat account is merely a depository account to store your investments.
- Be aware of charges: You must already know that charges vary widely between brokers, depending on their types and nature of services offered. Based on the style and frequency of your trading, you need to select between a discount broker or full-service broker.
- Update correct data: When opening the account, double-check the details provided by you. Any error in your application will get it rejected. Also, if you want to change your mobile number or email id, update the same information with your DP to keep receiving regular updates on your account.
- Add nominee: Naming nominee is something we ignore, but it is absolutely essential. Adding a nominee to your Demat will help you eliminate lots of hassles in the future, like transferring shares. While opening a Demat it is mandatory to add a nominee at the beginning.
- Be vigilant: Nowadays, most DPs will send you regular transaction/activity updates on your account through SMS and emails. Demat accounts are safe but not protected from fraudulent activities, and so, the responsibility comes to the investor to keep a check on the activities happening in the account and take timely action.
Now that you have a working idea of how demat and trading accounts work, and know how easy it is to open a demat account online, head to the ‘open demat account’ page and fill in your details in a few minutes!
Is it possible to open a Demat account online?
Yes, digitisation has helped in making the account opening process very easy. The modern e-KYC process has made the process quick and seamless. Now you can open a Demat, complete KYC verification, link bank account, and start trading with just a few clicks on a computer.
How many days it takes to open a Demat account?
With Angel One, your Demat account gets activated within 48 to 72 hours after you complete your application. With the introduction of e-KYC verification and self-attestation, the process has become effortless.
Aadhar linking is also important to open a Demat. However, it is a one-time task.
You can’t open multiple Demat accounts with the same broker.
It is a common practice for many traders to have at least two Demat accounts. One with a full-service broker and another with a discount broker. They switch between the two depending on transaction patterns, frequency, and charges.Is Demat account safe?
Is Demat account safe?
Securities stored in digital format in the Demat account are safe from theft or damage. However, risks associated with fraud and misuse remain. So, investors need to stay vigilant of any unauthorised activities related to their Demat account. The broker or Depository Participant will send you regular updates on SMS and emails regarding activities on your Demat account, which you need to track to protect your interest.
Can I open Demat account without Aadhar?
To open a Demat, PAN is essential. To complete the online Demat account opening process, you would need to verify your mobile number through the OTP-based authentication process. You can’t open a Demat online if your Aadhaar isn’t linked to your mobile number. In the above case, you’ll have to follow the offline route – filling up the form manually and sending it to our office.