What is Demat Account their Features and Benefits

Demat Account provides the facility of holding shares and securities in electronic format. During online trading, shares are bought and held in a demat account, thus facilitating easy trade for the users. Stocks in Demat account remain in dematerialized form. A Demat Account holds all the investments an individual makes in shares, government securities, exchange traded funds, bonds and mutual funds in one place.

You can open a Demat account with any bank or with brokers and financial institutions. Usually, banks offer attractive rates for a demat account in case you have your savings account with them. However, if you wish to go for online stock trading, you would find it more convenient to open a DP account and trading account with the same broker or financial institution.

Depository participant charge annual maintenance fees, transaction charges for debit of securities, fees for pledge of securities and various other charges such as charges for dematerialisation. The fees charged for DP services differ across the industry.

To open a demat account, you need to approach a Depository Participant (DP), who could be your bank or broker. You need to fill in the account opening form and along with it submit the following documents-

• Proof of Identity (POI)
• Proof of Address (POA)
• Copy of ITR’s
• Bank Statement
• Cancelled Cheque
• PAN Card
• Passport size photographs

A Demat account can be opened by an investor by registering with an investment broker or a sub-broker. Demat account can be accessed by using multiple modes i.e. computer, smartphone, or other smart devices and a transaction password which is provided after the successful opening of a Demat account.

The first step in opening a Demat account involves selecting a Depository Participant (DP) who will act as an agent to the depository. This will be followed by filling of the account opening form and submission of identity proof, address proof, PAN card, and a passport size photograph. A detailed description of all the acceptable documents can be found here. Once the investor agrees to the terms of the agreement and the charges, in-person verification is initiated. Upon successful processing of the application, post verification, a client ID or an account number is provided. This can be used by the investor to access his or her Demat account online. An investor can then use it to buy and sell shares, stocks, and derivatives.

In addition to the Demat account, an investor also needs a trading account and a stockbroker to carry out purchase or sale of shares. A trading account typically reflects the history of buying and selling in a specific account. It is the duty of the broker to transfer the shares to the Demat account of the investor after the amount for purchase is paid before the pay-in date.

• Freezing a Demat Account- Freezing of Demat accounts is a good option if one does not want any unexpected debits or credits in the account. The freezing option is also available for a specific quantity of securities for a specific time period held in the account.
• Less time consuming-The National Securities Depository Limited (NSDL) allows users to send instruction slips electronically instead of physically submitting the slip to the DP. This makes the procedure more convenient and less time-consuming.
• Transfer of shares–Investors can transfer their holdings through a  (DIS) or receipt instruction slip (RIS) for buying or selling shares.
• Dematerialisation and Rematerialisation of Securities- Demat account holders can provide instructions to their depository participant (DP) to convert physical certificates into electronic form or vice a versa with the submission of a Demat Request Form and a Remat Request Form. Dematerialisation refers to the conversion of securities into electronic form and conversion of electronic form securities into physical form is called Rematerialisation.
• Various mode of access- Demat account are operated electronically, which means these can be accessed by using multiple modes i.e. computer, smartphone, or other smart devices.
• Hypothecation for Loans– Investors can take a loan against securities (shares, debentures, bonds, mutual fund units) that are held in their Demat accounts. The securities are offered as collateral to the lender by the borrower.
• Corporate Benefits & Actions- If the companies offer dividends, refunds, or interest to their investors, these benefits is automatically available to the Demat account holders. Corporate actions like bonus issues, right shares, or stock split are automatically updated in the Demat account of all the shareholders.

These are some of the advantages of a Demat account:

• Lower Risk - Physical securities are risky due to theft, damage etc. Demat account eliminates the threat of theft, forgery, fake certificates, non-delivery, etc.
• Single account for many segments- Demat account holders can make it more convenient to hold and track all their investments through a single account. We can operate many segments through single account.
• Reduced transaction cost- It helps to reduces transaction cost vis-à-vis dealing with physical investment certificates/securities. Physical certificates involved several additional costs, such as stamp duty, handling charges, and other such expenses.
• Quick transfer- Due to the elimination of paperwork, the time required in completing a transaction gets reduced. The transaction processed quickly.
• Maintenance Fees- Lower annual maintenance fee reduces your cost of holding securities.
• Liquidity- Enhances the liquidity of your investment portfolio.
• No lot size requirement- With physical certificates, buying and selling were possible only in the specified quantities. The convenience of dealing with odd lots or single security was also not available, demat account eliminate this issue.