With the current scenario around the stock market, many individuals have begun their investment journeys. The stock market is undoubtedly one of the most lucrative spaces to build wealth. When it comes to investments, investors make both long-term and short-term investments based on their financial capacity, risk appetite, as well as their investment strategy. This article explains everything you need to know in order to make investments through a Demat account.

What is a Demat Account?

In essence, a Demat account is short for a dematerialization account which is similar to that of a bank account. With this account, your share certificates and other securities will be digitally and electronically stored. In the earlier times, in order to purchase a share in any company, physical shares certificates were issued as proof upon payment required for the desired number of shares. These shares certificates were considered to be proof for the purchase of shares in the said company.

However, in the current times, no paperwork is involved when it comes to purchasing shares. The entire process has been made digital. So, when you purchase a certain number of shares from any company of your choice, the shares would be transferred to you digitally. To facilitate this digital transfer, a Demat account is required.

How to purchase shares through a Demat Account?

You will be able to purchase shares through a Demat Account once you ensure to follow the below 6 steps.

Get your PAN Card

Your PAN card is very important as your Permanent Account Number is a legal identification of your income stream along with taxes as well. According to the regulations imposed by the government, you will be mandated to provide your PAN card in order to make any financial transactions. It is also a key factor to understand your tax liabilities.

Ensure that you have an active bank account

Before you go ahead with opening a Demat account, you need to make sure that you have a working bank account. You will not be able to purchase any shares online without a bank account. Transferring of funds to your Demat account will be initiated through your bank account. Ultimately, your trading account links your Demat account with your bank account. In case you plan on selling shares, the settlement will be credited to your Demat account within T+2 days which can further be transferred to your bank account.

Open a Demat Account

In order to purchase shares online, you will need to open a share Demat account with any stockbroker. Based on your requirements, choose a stockbroker that fits you best. You would be required to submit a set of documents to initiate the process of opening your Demat account. The entire process is fairly simple and will be completed within the span of a few working days depending on the stockbroker. A Demat account is similar to that of a bank account that provides you with an option to deposit money.

The share market Demat account can help you buy, sell, and hold shares for any period of time. You must also remember that you will be allowed to open a Demat account with a DP (Depository participant) who are either registered with NSDL (National Securities Depository Limited) or CDSL (Central Securities Depository Limited) or both of these bodies.

Open a trading account

Once you open a Demat account, the next step is to open a  trading account. With the trading account, you can buy and sell any share in the stock market. It is necessary for you to have both a Demat account as well as a trading account to purchase stocks.

Get your UIN (Unique Identification Number)

Finally, get your UIN. In order to create a database of all the individuals who participate in the stock market, SEBI has mandated unique identification numbers for every investor and trader. However, you will require a UIN only if you are trading with a capital of Rs. 1 Lakh or more. You will not require a UIN if you plan to trade with lesser capital.

Documents required to open a Demat Account? 

To open a share Demat account, you will be asked to submit the following list of documents. So, ensure that you keep them handy in order to fasten the process of opening your share market Demat account.

  • Proof of Address such as your Passport, Utility Bills, Driving License, etc.
  • Proof of Identity such as your Aadhar Card, Passport, PAN Card, etc.
  • PAN Card
  • Proof of Income such as a Copy of ITR, Proof of Salary, etc.
  • Proof of Bank Account such as a Cancelled Cheque
  • One to three passport-sized photographs

Purchasing shares through Demat Account in the secondary market

To begin with, the secondary market is simply the following public offering. The secondary market is the place where the trading of securities is carried out. If you are looking to buy shares in a secondary market, you will definitely need to open a trading account with your broker. So, once you purchase your trade, your broker will send you a confirmation for the same. Once that has been done, your shares will reflect in your Demat account in T+2 days. The remaining process is taken care of by the stockbroker and would require no effort from your side.

If you pay the entire amount without any dues before the pay-in date, it is important for your stockbroker to reiterate that the shares will be transferred to your Demat account. In case of any pending dues from your end, your stockbroker may withhold the transfer of shares.

Conclusion

Now that you have a detailed understanding of how to purchase shares through a Demat account, get started right away. However, before you begin with the process, ensure to have an active bank account as well as a Demat account, to begin with. If you are yet to open a Demat account, Angel One can help you open one within a very short span of time. You will only be asked to submit minimal documentation and will be able to begin your investment journey soon.