A Demat account, or a dematerialised account, helps store and hold your shares and securities digitally. This account also enables you to sell or buy shares. In addition, it allows you to keep tabs on all your investments.
Before 1996, physical copies of shares were used for trading and investing in the share market. However, with the coming of the NSDL (National Securities Depository Limited) in 1996, the trading and investment procedures are now managed electronically and via Demat accounts.
NSDL and CDSL are two entities that govern every Demat account.
Share trading is an online process. Hence, you need an account to store all your purchases of shares and securities in an e-format. Remember, for making the transactions, i.e. buying and selling, you also need an active trading account.
Therefore, both of these accounts are mandatory for stock market transactions.
Let's understand its features and use:
1. It allows the storage of shares, exchange-traded funds, bonds and mutual funds in one place, digitally.
2. Stock market trading was done with heavy paperwork earlier, making it a tedious process. But the transition to an online system has eliminated the need for physical shares.
3. As Demat and Trading accounts can be accessed online via mobile or laptop, tracking the share transactions and holdings is convenient.
The Demat account stores your securities, while the transactions are performed through a trading account.
Once an order to buy shares is placed through a trading account, the exchange finds a suitable seller for your requirements. Once the deal is closed, the clearing house settles the trade and the associated exchange of funds.
The shares get credited to the buyer's Demat account after T+2 days, where ‘T’ is the day of the transaction.
Majorly these accounts are divided based on your place of residence. So, check your eligibility and choose accordingly.
Regular Demat accounts allow trading for residents of India. With a Demat account, you can trade on the stock market without any hassles.
Non-Residents of India, or NRIs, who are interested in trading in the stock market require a Repatriable Demat Account. With the help of a Repatriable Demat account, they can transfer their funds earned through the stock market to various foreign countries.
This account is also for NRIs. However, the difference is that this account doesn’t allow you to send the funds earned through trading abroad. You are required to link it to a Non-resident Ordinary (NRO) bank account.
Here are some essential things that you are required to note regarding a Demat account.
In this fast-evolving technological world, you can now enjoy access to both trading and Demat accounts on a single platform. So, look for a broker that can provide you with such a feature and ease of accessing your account through the web and mobile app.
Account opening charges, annual maintenance charges, etc., are some charges that you need to pay. Look for a broker that charges the least fees and gives you a free Demat account. With Bajaj Financial Securities Ltd., you get to enjoy free Demat account opening through its Freedom Pack plan.
Since you will be investing your savings in the share market, look for brokers with an active support system and is trusted in the market.
The documents requirement includes:
Proof of Identity with your photograph: Permanent Account Number Card (PAN), Voter Identity Card, Drivers Licence, etc.
Proof of Address: Aadhaar Card, valid Passport, Drivers Licence, Statement of Bank, etc.
Bank account details and proof: Bank account statement of last 3 months, Passbook, Cheque (It should contain account holder’s name, Bank IFSC code and Account number)
Proof of Income: Latest ITR, 6-Month Bank statement, Demat Holding Statement
Opening a Demat account is a hassle-free process. As the first step, you are mandatorily required to choose a DP and then complete the Demat account form. Make sure you enter the details correctly.
The next step is the submission of this form with the necessary documents and going through the KYC process. In the end, you will be given a login ID and password, using which you can log in to your Demat and trading account and begin trading.
To view the details, you need to log into your account and click on your 'Profile/Account' option. Here you are shown all such details. However, if you are confused about what exactly these terms are, read the pointers below to understand.
Depository Participant name (DP Name) refers to the official name of the broker involved in opening the Demat and trading accounts.
For example, if you have opened a Demat account with the assistance of Bajaj Financial Securities Limited, then your DP Name will be Bajaj Financial Securities Limited.
A DP ID refers to the unique numerical identification given to every DP (Depository Participant) in the stock market. This identification number is the same for all customers.
It refers to the Beneficiary Owner Identification Number. This 8-digit unique identification number is given to each customer.
A Demat ID refers to the 16-digit numerical identification that basically includes your DP ID followed by your BO ID.
Here is a table inserted below to give you a quick insight into the fees and charges of opening a Demat account with Bajaj Financial Securities Limited.
Fees and Charges
Account opening charges
₹20 per order*
The main purpose of a Demat account is to hold securities digitally, while the purpose of a trading account is to enable you to buy and sell securities in the stock market. Also, a Demat account is a storage account while a trading account is used for stock market transactions.
Another point of difference is that Demat account keeps track of your shares that you have already purchased. On the other hand, a trading account shows you the transactions of these securities.
It is essential to note that you cannot make transactions directly through the Demat account. Conversely, a trading account does not let you store securities as this provision is provided by a Demat account.
With only a Demat account, you can apply for IPO as well as hold the securities that you have purchased. On the other hand, with only a trading account, you can invest in futures and options and execute intraday trades where there is no delivery of shares.
There are typically four participants in the Demat process. Read on to find out more about Demat participants.
Two organisations do the storage of your shares and securities in the digital form. These depositories act as a bridge between you and the companies whose shares and securities you wish to buy. The 2 depositories in India are:
CDSL (Central Depository of Securities India Ltd)
NSDL (National Security Depository Ltd)
The Demat account owner or holder that has purchased and has access to the shares and securities is referred to as the investor. This may include companies, an individual or any other entity whose name is associated as an owner of any shares or securities.
Depositories have several officially registered trading agents, which are called Depository Participants, or DPs. They are also called stockbrokers. In simple words, they bridge the gap between you and the depository. Therefore, if you plan on opening a new Demat account, you require the assistance of a DP.
This is the company that originally owns the shares and securities that you purchase. To increase funding, they sell the shares or securities to the public.
In India, to invest in the Indian stock market, you are mandatorily needed to open a Demat account, which stores your dematerialised shares. Another account that is needed is the trading account, which allows you to buy and sell securities and shares.
The Demat account eligibility is minimal. You need to be at least 18 years old, have valid address proof, valid identity proof documents, a bank account, and a PAN card.
BFSL allows opening a free Demat & trading account through its Freedom Pack plan. There is zero Annual Maintenance Charge (AMC). ₹431 is applicable as the subscription charge from the second year onwards.
Yes, a Demat account can be opened jointly. When a particular Demat account has more than one user or holder, then it is known as a Joint Demat account.
Yes, opening more than one Demat account is possible. However, you need to get different DPs or brokers for all accounts. All the Demat accounts owned by you must be linked to your single PAN card.
Based on their internal process, the Demat account opening process varies across Depository Participants (DP). You can expect a time duration between 10 minutes to 1 hour to get your account opened and ready for use.
Note that on Saturdays and Sundays, the account opening process might be delayed as the Exchange approval to activate the accounts might take an extended time.
Yes, you can link your Demat and trading account. Also, multiple Demat accounts can be linked with your single trading account. This helps to avoid providing your Demat account details every time you make a transaction.
Yes, Demat accounts are secure. Two depositories keep an eye on every Demat account- National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). They notify you about the transactions that you perform. Yet, it is advisable to be vigilant of any security transactions in your Demat Account.
In most cases, opening a Demat account does not include any account opening charges. However, this depends on the DP and some may levy such charges. This is why you should check the terms and conditions before you open an account.