Trading and investing in the stock market has become enormously popular especially in recent times. One cannot own stocks directly without having a demat account. Therefore, several investors and individuals who are new to the stock market begin their trading journey with a stockbroker before performing extensive research on the platform. However, over time, many investors and traders could expect more from the trading platform, thereby expecting more features and functionalities.
Now, a demat account functions like a bank account, but the transactions involve assets like stocks and bonds instead of cash. Trading with demat accounts is enabled by stockbrokers who act as intermediaries to the stock exchanges – the NSE and the BSE. With the era of online trading, different brokers provide different online trading platforms with their own unique interfaces loaded with features and tools that allow traders to study and analyze the markets before entering trading positions. Since brokers provide a service, they also levy fees for the service known as a brokerage that may vary from one broker to another. As a result, it is not uncommon for users to transfer shares from one broker to another as they may feel that the services being offered by another broker are superior or the charges being levied are more economical.
Reasons for the transfer
There are two primary reasons why an investor transfers shares from one demat account to another:
- They are opting for another broker – If an account holder’s requirements from his/her current broker change, it calls for a new broker and therefore the opening of a Demat account as well. In such a case it is also necessary to transfer the shares from the old Demat accounts to the new one. This may happen due to a variety of reasons such as:
- smaller brokerage fees
- better online trading platform and services ie. speed and ease of transaction
- better security
- value added services such as market intelligence reports
- They hold multiple demat accounts –
- The user may hold multiple demat accounts and may now want to merge them into a single demat account, necessitating the transfer of shares.
- Contrary to having numerous demat accounts, one may have a single account and may want to open new demat accounts for a demarcation between trading and investing activities. The reasons may vary, but the process is similar for everyone.
In each case, the ownership of the shares remains under the same name and hence there is no transaction involved.
How to transfer?
There are two modes of transferring shares between demat account—online and offline. Even though the manual mode is more popular, the online process is gaining ground rapidly. The process is slightly different for both the modes.
For the online mode, you will have to visit the site of the depository and register yourself. India has two depositories—NSDL and CDSL. Depositories are the financial institutions tasked with the safe-keeping of the shares and facilitating their transfer. After the registration, you will have to fill out a form and get it approved by the depository participant. Dps are the intermediaries between the depository and investors. After the verification process by the DP is complete, you will get a password in your registered email id. You can use the password to access your account and transfer shares from one demat account to another. If the online process seems too confusing, you can choose to manually transfer your shares.
Manual/Offline transfer of shares
In case of the manual transfer of shares from one Demat account to another, it is important to be aware of certain specifications. Firstly, it is important to know that the shares being transferred are maintained and held in depository systems ie. CDSL or NSDL. The ownership of the shares are registered with either of these central depositories.
The mode of transfer of the shares is dependent on the depository with which your broker is associated. If the account holder’s existing and new brokers are both associated with the same depository, there will be an intra-depository transfer (or an off-market Transfer) of shares. If, however, the existing and new brokers are associated with different depositories, there will be an inter-depository transfer of the shares.
When an intra-depository transfer or an off-market transfer is being made, the account holder must use a Debit Instruction Slip or a DIS booklet that is provided by their Depository Participant (DP). In case of an intra-depository transfer, these are the steps that need to be followed:
Step 1 – Record the names of the shares that are to be transferred. Additionally, the ISIN number has to be recorded as well, wherein the ISIN or the International Securities Identification Number is a 12-digit code required to identify securities such as funds, equities, bonds, stocks, debts, and more. It is essential to correctly enter the ISIN number as the transactions will be processed based on it.
Step 2 – For the next step, the target client ID has to be recorded. It is a 16-character code which includes the ID of the client and the ID of the DP – basically the new Demat account
Step 3 – This is an important step as it involves the selection of the method of transfer. If the mode of transfer is an intra-depository or an off-market transfer, then the column titled ‘off-market transfer’ has to be selected. If the mode of transfer is inter-depository, then the ‘inter-depository’ column should be selected. It is important to be cautious when selecting this option.
Once the DIS slip has been filled in, there are a few final steps that need to be taken:
Step 4 – The filled-in and signed DIS slip must be submitted to the account holder’s existing broker or DP and collect the acknowledgement receipt from him.
It will take between 3-5 business days for the existing broker to transfer the required shares from the old Demat account and for the new broker to receive the shares in the new account. The current broker may apply a few charges for this procedure, and the rates vary from one broker to another.
Online transfer of shares
If an online transfer of shares is being considered, it can be simply done using CDSL. The account holder is required to visit the CDSL website and get themselves registered. Once that is done, the form has to be submitted to the DP. After the DP has completed the verification process, the account holder will then be allowed to make their own future transfers. These are the steps that need to be followed:
Step 1 – Once the CDSL website (www.cdslindia.com) has been accessed, the ‘Register Online’ link has to be selected. Next select the EASIEST option from the menu (EASIEST stands for Electronic Access to Securities Information and Execution of Secured Transaction)
Step 2 – The next step is to fill in the form with the required details. Enter the details such as the DP ID ( the ID of your broker), your BO ID ( Beneficial Owner, which is the demat account holder), email, phone number etc. You will receive a one-time password (OTP) on your registered mobile number. Enter the OTP in the box provided. Once your mobile number Is verified, your registration will be completed within 24-48 hours and you can transfer shares from demat to another online
Step 3 – Once the form has been filled in, the option to ‘Print Form’ has to be selected. After the form has been printed, it will be transferred to the account holder’s DP.
Step 4 – After the DP has finished the verification process of the form, a password will be sent to the account holder’s email id.
Step 5 – Using the provided password, the account holder can log in and begin transferring the required shares.
The transfer of shares may happen under the following special circumstances:
Transfer Between the Same Depository and No Credits Due
This is a fairly simple case. In case you have credits or debits due on your account with the present broker, and you are transferring to a broker under the same central depository, then you can initiate the brokerage account transfer process yourself and there are no additional permissions required.
Transfer Between Different Depositories
In case you are transferring to a broker registered with a different depository than your current one, then you need to submit a Debit Instruction Slip (DIS) to your present broker in order to transfer shares between brokers. This process can take up to two business days. Once it is done, you may close the existing demat account with the broker and start trading with the new one. Make sure to get a stamped acknowledgment of demat account closure from your old broker.
Transferring Account But With Open Positions in the Market
This is a fairly common scenario as it is not always possible to time one’s brokerage account transfer process with exiting the open market positions. The process is fairly simple and hassle-free in the case of equities. All your open positions are transferred to your new account. However, in the case of Futures and Options (F&O) positions, this may not be possible. So it is advisable that you close any open F&O positions before transferring your account to a different broker. In case you have any debits or credits due in the account, these will have to be cleared first. Debits are any charges you need to pay to the broker, and credits are any amounts due to you by the broker. Make sure you take acknowledgment of the cleared debits/credits from the broker to avoid any issues in the future.
Transferring Account With Credits Due
This is usually the most complex scenario in the brokerage account transfer process. Credit here means anything due to you. It could either be shares that you placed a buy order for, but which have not yet been credited to your demat account. Alternatively, it may mean that you have sold certain shares and the proceeds have not yet been credited to your demat account. In each case, you are owed something from the broker in the middle of the brokerage transfer process and these have been held back by the broker. To deal with such a situation, you can deploy a 3 step approach:
- Check if there are any debts due to your broker from your account. It is likely that the broker may have held back your credit on account of these dues. If this is the case, authorize your broker to deduct these dues from your credit.
- In case, the matter is not resolved by the previous step, you should immediately write a letter to your broker to credit any amounts or equities due to you with immediate effect. In most cases, the broker transfers your credit within a week. Once this is done you should close your old demat account.
- In the rare event that your credits have still not been processed by the broker, you can further escalate the matter by writing to whichever depository (NSDL/CSDL) your broker is affiliated to, along with the relevant stock exchange. (NSE/BSE) You can even consider filing a written complaint with the SEBI as a last resort.
In the earlier times, a manual transfer between brokerage accounts was followed to transfer stocks between brokers. This would come along with several difficulties such as the increased amount of time taken for the entire process and the increased risk of human error. So, in recent times, the NSCC (National Securities Clearing Corporation) developed a software system called the ACATS (Automated Customer Account Transfer Service) to make the process of moving shares between brokers easier and faster while mitigating errors. The ACATS system can facilitate the transfer between brokerage accounts for stocks, bonds, unit trusts, options, futures, mutual funds, cash, and several other investment products.
However, it is crucial to remember that both the stockbrokers or firms need to be NSCC-eligible members or be member banks of the Depository Trust Company. Both the firms irrespective of whether the firm is delivering the stock or the firm is receiving the stock, have to be compliant with the ACATS system. Here is the process through with ACATS transfers work. Typically, there are 4 major steps for every ACATS transfer.
Step 1: The process starts out by filling a transfer initiation form with your new stockbroker of choice. You can either find this form online on the website of the stockbroker or can receive guidance through a phone call.
Step 2: Your new stockbroker contacts your old stockbroker to discuss certain terms and procedures in order to initiate the transfer.
Step 3: The process of validation of transfer information begins with your old stockbroker. They can either amend the information or reject the same more or less within 3 business days.
Step 4: The final step of this process is the transfer of your account. Considering that all of the paperwork is accurate, the transfer of your account to your new stockbroker should be completed in about 7 working days.
To carry out this entire process, your old stockbroker may charge a transfer fee. In addition, ensure to avoid any discrepancies in your account or paperwork as it could delay the transfer process even further.
How to ensure that the transfer is successful?
The first action point must be to understand the process of transfer thoroughly. It is also advisable to contact the new stockbroker to verify their requirements and policies regarding the transfer. For instance, if you have a margin account, it is best to inquire about the requirements for such an account with the new stockbroker. In addition, it would be beneficial to verify the required documents and the details regarding the transfer so that the entire process of moving shares between brokers can be hassle-free.
Challenges with transferring stocks between brokers
In order to transfer stock from one stock broker to another, it is essential for both firms to be compliant with the ACATS system. However, there are several types of securities that are not compliant with the ACATS system. For instance, several insurance companies offer annuities that are quite common. These annuities cannot be transferred through the ACATS system. The process of transfer for such types of securities varies from the process involved to transfer stocks between brokers. Typically, the 1035 exchange is used to transfer annuities. This is a provision that allows transfer without taxes on insurance products.
In addition, for individuals who hold employee-sponsored 401(k), transferring their annuities would involve a whole other procedure. Thereby, while the ACATS system can help with the transfer between brokerage accounts, there are certain challenges when it comes to other types of securities.
Why shouldn’t you sell your investments instead?
Several individuals sell their investments (and not transfer them) for the sake of convenience. The typical process beyond selling investments is to withdraw that money and deposit the same into the same stocks with the new stockbroker.
While this process may seem simple and profitable, many individuals discount the aspect of taxes on capital gains. If you aim to transfer your brokerage account from one stockbroker to another, the gains you receive upon withdrawing your investment will be table capital gains. The profits that you earn from your investment will be taxed. In addition to taxes, you may also have to pay certain fees while selling and repurchasing the same investments. So, if you are not comfortable and cannot leverage the best of your current broker’s services, it is best to transfer your account instead of selling your investments.
How to transfer funds to your trading account?
In order to start trading, the very first step that needs to be taken is creating a trading account. This is because the trading account holds the funds that will serve as capital for the trade. There are primarily three different ways of transferring money into an account. One can opt for the payment gateway, the NEFT/RTGS facilities or the option to pay by cheque/DD to the broker.
- Instant transfer of funds through Payment Gateway
Payment gateways are one of the most commonly used modes of transfer. One can use any bank account or debit card to transfer funds into their trading account. One of the biggest advantages of this method is that the transfer of funds is done instantly, and one can start trading as soon as their account reflects the deposited credit. It is important to note that with every transfer, one incurs a charge of Rs. 9 (plus taxes) and if transfers are made frequently, the charges may add up significantly. It is also important to keep in mind that, as per SEBI Regulations, credit or charge cards cannot be used to transfer funds into an account, only debit cards or net banking can be used for the process.
- Depositing funds via NEFT / RTGS / IMPS
National Electronic Fund Transfer (NEFT) is one of the more popular modes of fund transfer. Generally, the time taken for a transfer of funds from one bank account to another is around 2-3 hours. However, if the transfer is made between two accounts of the same bank, the credit is deposited immediately. When transferring funds to the broker’s account that account must be added as a beneficiary. Once the password and OTP that have been sent are filled in, the transfer will take place. NEFT can be used to transfer funds into commodity accounts as well as equity trading accounts. The transfer can either be done online or by depositing an NEFT cheque. Both processes require the same amount of time. There are no additional charges incurred during an NEFT transfer. Real Time Gross Settlement (RTGS) is very similar to an NEFT transfer. The only difference is that RTGS can only be used for the transfer of funds more than Rs. 2 lakh. While transfers such as NEFT and RTGS can only be done within general banking hours ( 9:00 a.m. to 6.00 p.m.). However, an IMPS transfer can be made outside these hours. An IMPS transfer is instantaneous but additional charges may be charged for this facility.
- Depositing funds by cheque or demand draft
Funds can be transferred by depositing a cheque only in case of an offline trading account. In case of an online trading account, it is essential to use the payment gateway or NEFT/RTGS/IMPS modes of transfer. It is important to note that in case of an offline transfer, the cheque has to be drawn in favour of one’s broker. The process takes 2-3 days and the cheque or demand draft credit is sanctioned only after the broker receives the clearing credit. When signing the cheque one must ensure that their account is funded, or else they may incur penal charges.
How to link a bank account with a Demat account?
When it comes to linking a bank account with a Demat or Trading account, it is important to note that while the basic process may remain the same, there are certain details that may vary from one bank to another. It is possible to link one primary account and two secondary accounts. The primary account will be used to process all pay-outs. The secondary accounts may be used to process the pay-ins. In order to link a bank account with a Demat account, one needs to:
Step 1 – Visit the website of the bank where the account is held. Fill in the required form for the process to be initiated.
Step 2 – In certain cases, one may be required to take a print out of the filled form and send it to an address provided by the bank, where the account is held.
Step 3 – In order to add a secondary account, additional proof of the secondary bank account is required. A cancelled and personalised cheque (name printed on the cheque), a bank passbook statement or a self-attested bank statement (including the IFSC Code/MICR Number) can all be offered as documents of proof.
However, nowadays, almost every broker makes sure that the demat account is linked to the bank account.
The transfer of shares from one demat account to another is a seamless process if one is careful with the details of his/her holdings. While transferring shares between accounts, one needs to clearly mention the purpose of the transfer. If the transfer is between accounts held by the same person, the purpose may not be of material importance. However, if the shares are being transferred to a different individual, it should be backed by a genuine gift deed. The capital gains tax in case of most transfer like from father to son or husband to wife will be calculated from the original date of purchase.
Now that you have a detailed view into the process of moving shares between brokers, ensure to research your new stockbroker before making the leap. Having a good broker can make all the difference in online trading. You can open a hassle-free demat account for online trading with Angel One that offers a host of features and charges low brokerage.