Planning to Open a Demat Account? Top Things You Should Know

Technology advancement has increased the number of Demat account openings in the last few quarters. India has seen a record-breaking rise in the online Demat account opening segment. In March 2021,’ the Demat account opening rose over three times from March 2020’. 

A Demat account is similar to a savings account, here instead of money, shares are debited/credited as per the account holders’ orders in a digital or electronic form.

How Does It Work?

A Demat account is opened with SEBI registered stockbroker. When you buy a share from them, it is cleared through the National Stock Exchange (NSE) clearing or Indian Clearing Corporation Limited and deposited into your Demat account.

How to Open a Demat Account Online?

First of all, you need to know how to open a Demat account. To open it, you have to contact a depository participant (DP) to open a Demat account. Depository Participant includes stockbrokers, commercial banks, and other financial institutions.

The documents you require to open a Demat account-

  • Bank Account details include a passbook, a statement, or a canceled cheque.
  • For address proof, you may require, Voter’s ID, LIC policy, Driving Licence, Adhaar card, Electricity bill, and other documents which have your permanent address mentioned.
  • For Identity proof, you have to upload these documents Voter’s ID, PAN card, Driving Licence, Adhaar card
  • A PAN card is mandatory while applying for a Demat account.

Difference Between Demat and Trading Account

The major difference between a Demat and a trading account is-

A Demat account is used only to store the shares bought from the market for delivery purposes. On the other hand, a trading account is used for buying and selling shares.

Let us understand this with an example:

Suppose you have Rs.1000 in your wallet and you go to a shop and purchase a shoe. So, after deciding the price of the shoe, you pay the vendor from your wallet. In this case, the wallet is your online Demat account, and you work as a trading account, while the shoe is a stock of any company.

Types of Charges

We will discuss the number of charges that the DP charges. You have to decide which broker is providing more value by charging a minimum price.  

The types of charges levied by brokers’ are –

  • Account Opening Charges: It is a one-time fee that the depository participants charge to open a Demat account. However, recently many DPs have stopped charging any account opening fee. 
  • Annual Maintenance Charges: Depository participants annually charge you a nominal fee to maintain your account. Some DPs’ might not charge you in the first year as their promotional scheme, so you have to research before choosing any broker.
  • Dematerialization Charges: If you have any shares in the physical form you want to convert into the electronic format, you have to pay Dematerialization charges.
  • Transaction Fee: A  transaction fee is charged on your account whenever you buy or sell any share. The fee varies from broker to broker. 

Benefits of a Demat Account

There are many benefits that an investor enjoys from a Demat account. Some Of the major benefits are-

  • It is a zero-balance account. There is no requirement to maintain this account with a minimum deposit.
  • If the company decides any dividend or share split or any other corporate action, the Demat account is credited directly or the bank account, if it is linked.
  • The Demat account is easily accessible, and you can operate your account on N number of devices simultaneously from anywhere.
  • You can apply for a loan against your holdings in the Demat account.

Conclusion

These are the points you should know before opening an online Demat account, and there are many reliable brokerage firms where you can open a Demat account digitally.