We all know about savings accounts with banks. It allows easy access to our funds while offering security from theft and mishandling. A Demat account does the same for investors. Nowadays, the Demat account is a prerequisite for stock investment.
Demat Account is an account that is used to hold shares and securities in electronic format. The full form of Demat account is a dematerialised account. The purpose of opening a Demat account is to hold shares that have been bought or dematerialised (converted from physical to electronic shares), thus making share trading easy for the users during online trading.
In India, depositories such as NSDL and CDSL provide Free Demat account services. Intermediaries, depository participants or stockbrokers - like Angel One - facilitate these services. Each intermediary may have Demat account charges that vary as per volume held in the account, type of subscription, and terms and conditions between a depository and a stockbroker.
What is 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. A Demat Account holds all the investments an individual makes in shares, government securities, exchange-traded funds, bonds and mutual funds in one place.
Demat enabled the digitisation process of the Indian stock trading market and enforced better governance by SEBI. In addition, the Demat account reduced the risks of storing, theft, damage, and malpractices by storing securities in electronic format. It was first introduced in 1996 by NSE. Initially, the account opening process was manual, and it took investors several days to get it activated. Today, one can open a Demat account online in 5 mins. The end-to-end digital process has contributed to popularising Demat, which skyrocketed in the pandemic.
What is dematerialisation?
Dematerialisation is the process of converting the physical share certificates into electronic form, which is a lot easier to maintain and is accessible from anywhere throughout the world. An investor who wants to trade online needs to open a Demat with a Depository Participant (DP). The purpose of dematerialisation is to eliminate the need for the investor to hold physical share certificates and facilitating a seamless tracking and monitoring of holdings.
Earlier, the share certificate issuance process was time-consuming and cumbersome, which Demat has helped transform by speeding the entire process and storing security certificates in digital format. Once your Demat account is active, you can convert paper certificates into digital format by submitting all your physical securities along with a Dematerialisation Request Form (DRF). Also, remember to deface each physical certificate by mentioning ‘ Surrendered for Dematerialisation’ on it. You will receive an acknowledgement slip when you surrender your share certificates.
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Importance of Demat account
A Demat account provides a digitally secure and convenient way of holding shares and securities. It eliminates theft, forgery, loss and damage of physical certificates. With a Demat account, you can transfer securities immediately. Once the trade is approved, the shares are digitally transferred to your account. Moreover, in case events like stock bonuses, mergers, etc., you get shares automatically into your account. Your Demat account information regarding these activities is available online by simply logging into the website. You can trade on-the-go using your smartphone or desktop. So, you needn’t visit the stock exchange to transact. You also enjoy the benefit of reduced transaction costs because there is no stamp duty involved with the transfer of shares. These features and benefits of a Demat account encourage a larger trade volume by investors, thus increasing the potential for lucrative returns.
Demat account has made it easier to handle stocks. The Indian exchanges now follow the settlement cycle of T+2 days facilitated by the Demat account. You pay the seller on the second business day when you buy shares following the settlement cycle, and your Demat account gets automatically credited with the purchased securities. Demat account has made the process of security trading seamless and hassle-free.
Benefits of Demat account
- Seamless and fast transfer of shares
- Facilitates digitally secured storing of securities
- Eliminates theft, forgery, loss and damage of security certificates
- Easy tracking of trading activities
- All-time access
- Allows to add beneficiaries
- Automatic credit of bonus stocks, rights issues, split shares
How does a Demat Account work?
Trading through a Demat account is similar to the procedure of physical trading, except that a Demat account is electronic. You begin trading by placing an order through your online trading account. For this purpose, it is necessary to link both trading and Demat accounts. Once an order is placed, the exchange will process the order. Demat account details the market price of shares and the availability of shares is verified before the final processing of the order. On completion of the processing, shares are then reflected in your statement of holdings. When a shareholder wishes to sell shares, a delivery instruction note has to be provided with details of the stock. Shares are then debited from the account and the equivalent cash value is credited to the trading account.
Having a Demat account is compulsory per the Depository Act passed in 1996. To facilitate it, the National Securities Depository Limited (NSDL) was formed in 1996. And, the Central Depository Services Limited (CDSL) became the second such institution three years later. Together the two agencies are the custodian of all the electronic securities held by investors. They offer the Demat account opening service through various depository participants, like Angel One. Both agencies and their partner brokers are registered with SEBI.
The Demat account opening process involves three parties - your bank, the depository participant, and the depository. Tagging your bank account with your Demat account is critical for trading seamlessly. Linking your account details ensure when you buy shares, the money gets debited directly from your bank account, and when you sell, the proceeds get automatically credited.
A depository participant can be a non-banking financial institution, a bank, or a stockbroker. You would need to approach a DP to open a Demat account. The third party is obviously the depository. They hold the Demat account on your behalf.
Types of Demat account
While opening a Demat account, investors need to select a Demat account type that suits their profile carefully. The most common type is a regular Demat account. Any Indian investor or resident Indian can open a standard Demat account within a few minutes using an online account opening process. Apart from the standard Demat account, there are two other types. Let's take a look at them.
There are two types of Demat accounts—Repatriable Demat account and Non-repatriable Demat account. Repatriable funds are deposited in a separate bank account known as the Non-Resident External Account (NRE account). Repatriable funds are those funds which can be transferred abroad. The investments made from these funds are maintained in a The Repatriable Demat account holds the investments made from repatriable funds. On the other hand, non-repatriable funds (funds which cannot be taken/transferred abroad) are deposited in a different bank account known as the Non Resident Ordinary Account (NRO account).The Non-repatriable Demat account holds the investments made from non-repatriable funds. Money can easily be transferred from an NRE to an NRO account. However, once the transfer is made, the repatriability is lost and the money cannot be transferred back to the NRE account.Types of Demat account
- Regular Demat account: Regular Demat account is for resident Indian investors who want to trade in shares alone and need a storing for securities. The stocks get debited from your Demat account when you sell and credited when you purchase during trading. If you are trading in F&O, you don't need a Demat account because these contracts don't need storage.
- Basic Services Demat Account: It is a new type of Demat account introduced by the SEBI. These accounts don't have maintenance changes if the holding value is less than Rs 50,000. Between Rs 50,000 and 2 lakh, the changes are Rs 100. The new type of account targets new investors who are yet to open a Demat account.
- Repatriable Demat Account: Non-resident Indian investors open a repatriable account to transfer their earnings from the Indian market abroad. If you want to open a repatriable account, you'll have to close your regular Demat account in India and open a non-resident external account to receive payments.
- Non-repatriable account: This account is also for non-resident Indians, but it doesn't allow fund transfer to foreign locations.
SEBI has made it mandatory for investors to have a Demat account. You can't trade in the Indian stock exchange if you don't have a Demat. Update yourself on the account opening process, charges, and select a trusted depository participant.
There is a list of documents needed to open a Demat account, including personal details and bank/income details. Here is a list of the documents required.
- Proof of identity
- Proof of address
- Proof of income
- Proof of bank account
- PAN card
- Passport size photographs
The online method has made the account opening process simple. You can now set up a Demat account by submitting documents and completing KYC online.
Benefits of opening a Demat Account with Angel One
Main features of an Angel One Demat account
It is free: You can get your Demat account free of cost. We don't charge for opening a Demat account. However, there are annual maintenance charges when you maintain an account with us.
Easy tracking: When you open the Demat, you get qualified to receive monthly statements on your mobile and email id. The tracking features allow you to watch account activities and manage actions.
Seamless service: We allow seamless and fast linking with your bank account for a holistic experience. You can transact seamlessly with more than forty banks through net banking and UPI.
Complete trading ecosystem: Angel One Demat account has an ecosystem of the trading platform, apps, and tools attached for a better trading experience.
Benefits, offers, and rewards: With the Angel One Demat account, you gain access to offers, rewards, and benefits offered by the company.
- Invest Easily & Earn Better
- Gain access to the award-winning Angel One App - Trade, learn, and stay updated on the go. The app gives you latest news, research reports, and real-time updates on your fingertips. It also offers Portfolio Health Check to help you maintain an ace portfolio
- Get a better chance of earning higher returns with ARQ
- Fastest account opening process - Start trading in 1 hour
- Highly secure & speedy financial transactions
In addition to the advantages outlined above, you can learn more about the benefits of online share trading in India with Angel One.
One advantage of opening an Angel One Demat account is access to the complete suite of applications offered by the company.
Angel One is known for its digital-first approach towards stock trading. We have introduced several remarkable trading tools to help our investors generate index-beating returns from their investment. ARQ-Prime is a unique tool that combines analytics, machine learning, and AI to offer unparalleled returns. It rules out emotional biases while making recommendations and functions on a set of rules derived from the investor's profile.
The tool offers solutions on a wide range of stocks and lets you pick winners from categories of value stocks, quality stocks, high momentum stocks, growth stocks, and more. We have tested it against the most challenging market conditions, and it has delivered envy-worthy results under all circumstances.Advantages of using ARQ-Prime
- The rule-based strategy offers the maximum benefits
- Minimises risks by cutting losses early
- Starts earning higher returns from your subscription date
- Offers live updates
- Exhibited a proven track record of regenerating 100% returns in 11 months
- Free to try; after that, get hassle-free auto-renewal
- Demat: Demat stands for dematerialisation. It is a process of storing securities in a digital format. SEBI has made the Demat account mandatory for stocks investors.
- Depository participant: A depository participant is an agent of the depository, offering Demat account opening services. They are registered with the Securities and Exchange Board of India.
- Depository: A depository holds and offers a Demat account. In fact, all securities owned by investors in digital format are stored with the depositories. There are two primary depositories - NSDL and CDSL. All depository participants (DP) are listed with a depository.
- NSDL: NSDL stands for National Securities Depository Limited. It was formed in 1996 when the Demat account was introduced to the Indian stock market. As of November 30, 2021, NSDL had 2,45,96,176 active investors accounts.
- CDSL: The Central Depository Services Ltd is the other depository besides NSDL. It has 592 enlisted partners and 5,26,37,291 active accounts.
Advantages unique to ARQ - by Angel One
Index beating returns
ARQ gives you a shot at earning the best possible returns. It takes emotional bias completely out of the equation and helps you make the right investments that have the potential to offer great returns.
ARQ uses Nobel prize-winning Modern Portfolio Theory to give you personalised recommendations. Thus, you get the best asset allocation advice across major asset classes like equity, gold & debt mutual funds, which is unique to your risk preferences and helps you achieve your financial goals faster.
Recommendations based on future potential
Powered by advanced technology, ARQ processes billions of data points and sorts through billions of combinations to create models that have superior predictive power. Hence, the stocks & mutual funds recommendations have the highest future performance potential.
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Once you start investing with ARQ, you will receive periodic auto notifications to rebalance your portfolio. Thus, ARQ always keeps you invested in the most profitable stocks and mutual funds.
ARQ outperforms benchmarks consistently
Extensive back-testing and comprehensive track records have proven time and again that ARQ outperforms the benchmarks by a handsome margin. So, if you invest in recommendations given by ARQ you stand a better chance to earn higher returns.
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Demat Account Glossary - Meaning of Demat Account Jargon
Bank account, trading account, and Demat account are the three essential necessities while dealing with investments. When you purchase a company’s shares, your ownership is marked with a certificate. This certificate is now available in electronic format and is known as Demat credit.
Central Depository (CD)
Central Depository is basically a central agency that maintains all the relevant information pertaining to Demat accounts that are opened with DPs throughout the country. India’s central depository agencies include National Services Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
Depository Participants (DP)
The DPs or Depository Participants are fundamental intermediaries between the account holders and the Central Depository. DP’s include several banks, brokerage firms, and other financial institutions that offer investors with Demat accounts.
In order to buy and sell electronic securities, every investor needs a trading account, which is as important as a demat account. Every trading account is given a unique identification number that has to be used for all the transactions of an investor.
The Demat account of an investor keeps all his investment holdings of investors including: equity holdings, exchange-traded funds, mutual funds, government securities and bonds. All the holdings together are referred to as the investors’ portfolio holding, which they can access through their Demat account. All their purchases are reflected as Demat credits while all their his sale transactions are debited from the Demat account.
We hope that the information above clarifies how useful Demat accounts are. So, get started with opening a Demat account and enjoy its benefits.
More information on Demat account
What are the charges of Demat account?
The charges of Demat account vary as per the volume held in the account, type of account subscribed, and the terms and conditions laid by the depository and the stockbroker. While there are no Demat account opening charges, every stockbroker charges transaction/operation fees including the Annual Maintenance Charge (AMC). Failure to pay these fees may result in the freezing of the account.
How to open a Demat account?
In India, Demat account service is provided by depositories such as NSDL and CDSL through intermediaries / Depository Participant (DP) / stockbrokers such as Angel One. To open a Demat account, you need to contact the DP and fill out the account opening form. Once completed, you need to submit the form along with Proof of Identity and Proof of Address documents. The documents required to open a Demat account are identity proof like PAN card, copy of valid residence proof, existing financial balance sheets and recent photographs. Once the applicant’s details are verified, the application is processed. The broker then dispatches a welcome kit with details of the applicant’s User ID and password. One can access their Demat account using these details and begin trading in the stock market. It is essential that you open a Demat account with a reputed stock broking company like Angel One.
How long does it take to open a Demat account?
Usually, it takes about 48 to 72 hours to open a Demat account. However, with Angel One, you can get your Demat Account activated in one hour.
I have submitted my application. what happens next?
After submitting your application, the DP carries out a verification of the details provided on the Account Opening form. On completion of the verification, your application is processed and a welcome kit is dispatched. The welcome kit contains your user ID and password. You can then log into your account using these details and begin trading online. Your user ID and password are completely safe. Angel One does not dispatch the welcome kit containing the user ID and password to anyone except the client, as it contains confidential information. Once you receive your account details, it is advisable to login and change your password for security reasons
Whats is joint Demat account?
A Demat account can be held by a single as well as in a joint ownership. A joint Demat account can have a maximum of three account holders, which includes the main holder plus two joint holders. In effect, the joint holders acquire rights to the shares held in the joint Demat account.
Can I link Demat & trading account?
A trading account is different from a Demat account. While the latter only retains shares and securities, the former facilitates their sale and purchase. Shares purchased through a trading account may be deposited into the Demat account. Existing shares may also be withdrawn from a Demat account and sold through a trading account. The purpose of linking your trading account to your Demat account is to avoid the process of verification each time. This may also simplify trading. After the order has been sanctioned, shares are either removed from or deposited to your Demat account. When linking the Demat and trading accounts, it is also understand the difference between 2-in-1 accounts and 3-in-1 trading accounts. The 2-in-1 trading account basically integrates the trading account and the Demat account. The 3-in-1 account is offered by brokers that have banking operations within the group. Thus, ICICI Securities, HDFC Securities, Axis Securities and Kotak Securities are all able to offer 3-in-1 accounts due to their banking interface. While 2-in-1 accounts are a must to ensure seamless relationship between trading and Demat, the 3-in-1 is not a major advantage as most broking platforms will allow you to transfer funds almost seamlessly into your trading account.
Can I have two Demat accounts?
A trader may open multiple Demat accounts, however they can open only one trading account with a broker. Investors would want to have more than one Demat account if they are active traders and use each Demat account for a different trading strategy. However, they should also keep in mind the transaction and operation (AMC) fees associated with each account.