Do you know how to open a DEMAT account in India ? If not, here is a small primer on it.
This is on the back of readers asking how to open such an account and what it actually is.
Everyone must be aware that a DEMAT account is meant to be used when you have to buy and sell stocks and dip your hands in Initial Public Offerings (IPOs).
What is a DEMAT account ?
The word DEMAT is a short form for a dematerialized account. This is an account held by an individual or more than one individual for trading in securities. The Securities Exchange Board of India (SEBI) has mandated that every individual who wants to trade in listed stocks needs to have a DEMAT account. You can even buy mutual funds, gold ETFs (Exchange Traded Funds) by opening a DEMAT account.
After you open an account and you buys stocks, these are held in the electronic form for you. So you do not have to take physical possessions of the stocks in the form of certificates and papers. Isn’t that a great advantage given that you can have investments in the electronic form and do away with papers.
How to Open a DEMAT Account for On-line Trading
There are essentially two high level steps here :
1. Get hold of a Depository Participant (DP).
2. Get your relevant documents in order for submission.
1. Get hold of a Depository Participant (DP)
To progress opening an account, you have to approach a Depository Participant (DP).
So what is a Depository Participant (DP) ?
A depository is a storehouse where all your stocks are held in electronic form. A depository has branches called Depository Participants (DP) which takes care of clients. Depositories receive shares from DPs and not from investors directly. DPs are registered with SEBI and act as agents for depositories. So a depository participant is an intermediary between depositories like NSDL and/or CDSL and an investor.
In India, there are only two DPs – the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL).
There are many brokers and many financial institutions (eg. banks) who act like a DP.
List of DPs at CDSL website is here and list of DPs at NSDL is here.
Though the banks and brokers recommend a DP of their choice , you can choose any one you like.
2. Get your relevant documents in order for submission
You will, needless to say, have to fill up an account opening form and provide documents for Know Your Customer (KYC) guidelines. The documents differ from DP to DP so make sure you ask. You need to show your PAN card in original at the time of opening the account. The investor has to sign an agreement with the DP in a depository prescribed standard format in order to open the account.
In how to Open a DEMAT, some of the documents required might be :
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Passport
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Electricity/ Land-line phone bill
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Ration card
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Voter’s ID
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Driver’s license
After you have done due diligence, you will receive an account number which is also called BO ID (Beneficiary Owner Identification number) and a DP ID number for the account. You will need to quote both the numbers in all future correspondence with your DPs.
A point to be noted is that to trade online, you need to have essentially three accounts :
A DEMAT account – as discussed above, this is with a DP.
A trading account – this is with a broker. This is an account where you place orders to buy and sell shares. Essentially, it is a sandwich between your DEMAT account and your bank account.
A bank account – this is your savings bank account which is linked to your DEMAT account. When you buy and sell shares with your trading account, money is debited and credited (respectively) to this savings account.
There are four major charges usually levied on a DEMAT account : account opening fee, annual maintenance fee, custodian fee and transaction fee. All the charges vary from DP to DP. The account opening fee is waived off by many DPs.
How to Open a Demat Account – Here is a list of stock brokers in India you can get in touch with for opening your account.
- ICICIDirect
- Sharekhan
- Kotak Securities
- HDFC Securities
- Angel Trade
- Networth Stock Broking
- Religare
- Indiabulls
- Motilal Oswal Securities
- Reliance Money
- IDBIPaisaBuilder
- Geojit
- Standard Chartered
- 5Paisa
- HSBC InvestDirect
Let us know whether you found this article useful.
Great article, easy to read as well as it will be very much helpful for new investors who invest in Stock market. Generally i never make comments, but such blog force out. Keep it on.
@Stock Market, Thanks.
Really good article, and yes it is written in good format which is easy to read for the new investor who are interested to Open Demat Account
@Open demat account, Thank you.
Open demat account with us go to http://www.opendemataccount.com and get the good services.
ya a good one for beginners…………nice work……
Can anyone suggest few best options to open demat account in terms of service and charges?
@Ramachandran R.,
It really depends on what you are looking for. If you are going to invest in the stock market and just buy few stocks, all the brokers are one and the same. If you prefer to trade and you want less brokerage, then here is a forum and the details for it.
http://www.traderji.com/brokers-trading-platforms/54829-new-best-broker-poll.html – The poll which was conducted to give their opinion on best broker
The forum itself to ask questions – http://www.traderji.com/brokers-trading-platforms/
You would be able to see your query being answered already there.
@Manickkam, Useful info thanks Manickkam.
@Ramachandran R., What is your usage going to be? I think the term ‘best’ is a relative one… there are some providers who’ll charge very competitive rates if you trade aggressively (i.e. high turnover rate). So you need to first determine how much active you think you’ll be over next couple of years.
@Jaswinder Singh, I wanted to quickly add that in the right mind, an investor does not need to worry about the charges much because he should not be doing trading in the first place. Buying stocks for long term investing is correct, so why worry about charges.
@Ramachandran R., I will do an article on this later if you can wait till Jan end.
Thanks Jas,
I will not be very active throughout the year.
I am coming under 30% Income tax slab for this year. Paying Rs. 20,000 for Infrastructure Bond and saving 6k and waiting for many years for the money to come back does not sound interesting to me. I am just planning to put only this money into stocks. The stock market is bleeding now. I not going to invest heavily or depend on the returns. I just have this money and willing to invest in stocks.
I need few options for demat a/c and online trading. please share your experience.
@Ramachandran R., In this scenario, I would suggest you to enter into the market through the mutual funds route unless you have any specific stocks in mind to invest.
If you want that also to be tax-exempted, you can invest in ELSS mutual funds.
@Manickkam, What is DTC going to do to ELSS Manickkam ?
@Radhey Sharma, With DTC, investing in ELSS won’t fetch you tax benefit and mostly investors who had invested just for tax benefit would withdraw after their lock-in period.
And, hopefully, they all become normal open-ended equity funds after DTC. But it seems DTC is not coming anytime soon.
@Ramachandran R., But if you do not invest Rs 20k in the infra bonds, you cant get the income tax benefit by investing the same money elsewhere. Or can you ?
@Radhey Sharma, No, 20000 in infra bonds is a separate bucket other than 80C. This is present only from last year and we aren’t sure whether it would continue, though.
All the other common things, Insurance, PF, PPF, Pension, Principal, ELSS, Tuition Fees etc., comes with a cap of 1 Lakh under 80C.