Facts About Demat Account You Should Know Before Opening One

In this article, we will cover

• What is a Demat Account?
• Prerequisites to Open a New Demat Account
• Essential Documents
• Things to Consider Before Opening a Demat Account

In India, the financial markets have provided investors with a key source of profit for decades. These days, buying and selling stocks and other financial instruments is a pleasure, all thanks to the widespread availability of advanced online trading tools and platforms like the time-saving demat account. Without a shadow of a doubt, opening the best Demat account in India is now essential prior to making any kind of financial market investment. If you're a first-time investor, you should familiarize yourself with the procedures involved in opening the best Demat account in India.

What is a Demat Account?

A demat account is a type of account that enables investors to store digital copies of all the shares they have purchased. Since share certificates can no longer be held in physical form but rather must be kept in digital format in a demat account, having a demat account in India is now required. In order to prevent concerns with forged shares, every share certificate is held in digital format in the demat account and is connected to the NSDL or CDSL. Bonds, mutual funds, and other financial investments, in addition to holding shares, can also be stored digitally in a demat account.  A trading account is an additional requirement for stock investment. An investor with a trading account has access to stock exchanges where he can purchase and sell shares. An investor purchases or sells shares through a trading account, and the purchased shares can subsequently be stored in the best demat account in India in digital form.

Check our Video on What is demat account?

Prerequisites to Open a New Demat Account 

You can open a demat account online in accordance with a number of requirements that are necessary. Before applying and beginning to trade, you need to be aware of things such as the fees and documentation. 

Account Opening Fees 

While opening and using the account, you will learn about the many types of charges. There are mostly 3 that you will probably encounter. 

• Annual Maintenance Fees

The main purpose of the annual maintenance fee is to maintain your account active and provide you with services on a regular basis, as requested by you. Traditional brokers could demand a larger fee (between Rs. 300 and Rs. 800). 

• Account Opening Fees

Remember that various institutions will have varied account opening fees depending on their organizational structure, overhead expenses, and the products or services they provide. Discount brokers charge a minimal fee for opening a demat account compared to other conventional brokers and institutions. 

• Transaction Fee

A brokerage firm often assesses a fee for each transaction. This cost, which is probably the largest component of your overall expenses, may vary depending on the amount of your transaction or the number of stocks. Discount brokerages, however, charge as little as Rs 20 for intraday trading and zero commission for delivery contracts. Custodian costs and dematerialization fees, which are both included in the paperwork needed for a demat account, could also be charged. 

Essential Documents 

Demat account in India requires the same documents as are required to start a trading account. You will require an ID proof, address proof, and PAN card in order to open a demat account. In addition to a PAN card, which is a prerequisite, you will mostly need two documents. Identity Proof To proceed, you need to provide a photocopy of one of the following government-issued identification documents: 

• Driving License
• Pan Card
• Passport
• Voter Card
• Aadhar Card

Proof of Residence To confirm your address, you need to provide a copy of one of the following documents as proof:

• Passport
• Ration Card
• Passbook
• Voter ID Card
• Electricity Bill
• Driving License

Things to Consider Before Opening a Demat Account

• A demat account is mandatory for trading in the Indian stock market

A demat account is a digital account that holds securities in electronic form. The account eliminates the need for physical share certificates, making the process of buying and selling securities more efficient and secure. It is mandatory for all investors to have the best demat account in India if they want to trade in the stock market. The Securities and Exchange Board of India (SEBI) has made it mandatory to trade in dematerialized form, which means that securities have to be held in demat form for trading on the stock exchange.

• A demat account is different from a trading account

A demat account and a trading account are two different accounts. A trading account is used to place orders for buying and selling securities on the stock exchange, while a demat account is used to hold the securities that you have bought or received through corporate actions such as bonus issues, rights issues, and dividends. When you buy or sell securities, the transactions are executed through your trading account, but the securities are held in your best demat account in India.

• You need a broker to open a demat account

You cannot open the best demat account in India directly with the depository participant (DP). Instead, you need to approach a stockbroker who is registered with the depository. The broker will help you open a demat account online with a DP of your choice. The broker may also offer other services such as trading, research, and advisory. The broker will charge a fee for the services provided, which includes account opening charges, annual maintenance charges (AMC), and transaction fees.

• Refer and Earn Demat Account

Refer and earn demat account is a program offered by some brokerage firms that allows existing clients to refer new clients to the broker's demat account services. In return for the referral, the existing client receives rewards such as cashback, discounts on brokerage fees, or other incentives. This program not only benefits the existing clients but also helps brokerage firms expand their client base. However, investors should ensure that they refer only genuine and trustworthy individuals to avoid any legal or financial complications.

• You can have multiple demat accounts

There is no limit to the number of best demat accounts in India that you can hold. You can open multiple demat accounts with different DPs or with the same DP. However, it is important to note that you will have to pay annual maintenance charges (AMC) for each demat account that you hold. Holding multiple demat accounts can help you diversify your investments and reduce the risk of loss.

• You can link multiple trading accounts to a single demat account

You can link multiple trading accounts to a single demat account. This means that you can trade through different brokers or trading platforms using the same demat account. However, you will have to ensure that the securities are not sold or pledged twice. Linking multiple trading accounts to a single demat account can help you get the best deals and access to a wide range of investment options.

• Demat accounts can be opened in different modes

You can open the best demat account in India in two modes - online and offline. In the online mode, you can open a demat account through the website of the DP or through the website of the broker. In the offline mode, you need to fill up a physical application form and submit it along with the necessary documents to the DP or the broker. Online account opening is faster and more convenient than offline mode.

• Demat accounts require KYC compliance

Before you can open the demat account online, you need to comply with the KYC (Know Your Customer) norms. This involves submitting your identity proof, address proof, and other documents as required by the DP. The KYC process is mandatory for all financial transactions in India, including demat accounts. The KYC documents can be submitted online or offline.

• Demat accounts have maintenance charges

DPs charge an annual maintenance fee for maintaining your demat account. The AMC varies from DP to DP and can range from a few hundred rupees to a few thousand rupees. You will have to pay the AMC even if you have not traded in the account during the year. The AMC is charged to cover the cost of maintaining the demat account, including the cost of technology, infrastructure, and manpower.

• Demat accounts have transaction charges

In addition to the AMC, DPs also charge transaction fees for every buy or sell transaction that you make through your demat account. The transaction fees vary based on the value of the transaction and can range from a few rupees to a few hundred rupees. The transaction fees are charged to cover the cost of executing the transaction, including the cost of technology, infrastructure, and manpower.

• Demat accounts offer multiple modes of access

You can access your best demat account in India through various modes such as the internet, mobile app, phone, and visiting the branch. This makes it convenient for investors to track their investments and perform transactions at their convenience. The online mode is the most popular mode of access, as it offers real-time updates, alerts, and access to a wide range of investment options. The mobile app mode is also gaining popularity, as it offers ease of use and access on the go. The phone and branch modes are less popular but are useful for investors who prefer human interaction and assistance.

Conclusion

Opening the best demat account in India is an essential step for anyone looking to invest in the stock market. It allows investors to hold securities in an electronic form and eliminates the need for physical certificates. Before opening a demat account, it is crucial to have a clear understanding of the charges, processes, and type of services offered by the broker. Investors should also note that while a demat account provides several benefits, it also involves risks. Hence, it is vital to research and understand market trends and make informed decisions when investing. Samco has a user-friendly platform, which makes it easy for investors to trade and manage their investments. So don’t wait! Open your best demat account in India today!