A demat Account is an account that is used to hold shares and securities in electronic format. The full form of the Demat account is a dematerialized account. The purpose of opening a Demat account is to hold shares that have been bought or dematerialized (converted from physical to electronic shares), thus making share trading easy for the users during online trading.
In India, depositories such as NSDL and CDSL provide Free Demat account services. Intermediaries, depository participants, or stockbrokers – like Zerodha, Upstox, and Fyers – facilitate these services. Each intermediary may have Demat account charges that vary as per volume held in the account, type of subscription, and terms and conditions between a depository and a stockbroker.
What is a Demat account?
A Demat Account or Dematerialised Account provides the facility of holding shares and securities in an electronic format. During online trading, shares are bought and held in a Demat Account, thus, facilitating easy trade for the users. A Demat Account holds all the investments an individual makes in shares, government securities, exchange-traded funds, bonds, and mutual funds in one place.
What is dematerialization?
Dematerialization is the process of converting the physical share certificates into electronic form, which is a lot easier to maintain and is accessible from anywhere throughout the world. An investor who wants to trade online needs to open a Demat with a Depository Participant (DP). The purpose of dematerialization is to eliminate the need for the investor to hold physical share certificates and to facilitate a seamless tracking and monitoring of holdings.
What are the facilities offered by a Demat Account?
Transfer of shares
A Demat Account is used to transfer shareholdings of an investor. It can be done by using a Delivery Instruction Slip (DIS) in order to conduct share trading. You can provide all the relevant details in this slip for the smooth execution of a transaction.
The securities held in your Demat Account can give you access to a variety of loans from the bank. You can pledge these securities as collateral to secure a loan from your bank.
Dematerialization & rematerialization
If you have a Demat Account, then conversion of the securities into different forms becomes a simple task. You can give necessary instructions to your depository participant (DP) for dematerialization i.e. to get the physical share certificates converted into electronic form. Conversely, you can get the electronic securities converted back to the physical form as per your requirements.
Multiple access options
Owing to electronic operation, a Demat Account can be accessed using numerous media. You can conduct investing, trading, monitoring, and other security-related operations using the facility of the Internet on a computer, smartphone, or other handheld devices.
Having a Demat Account can help you avail of benefits associated with owning securities. Whenever a company provides dividends, interest, or refunds to its investors, all the Demat account holders get access to these benefits automatically. Additionally, corporate actions related to equity shares like stock split, right shares, or bonus issues are updated in the shareholders’ Demat Accounts.
Freezing Demat accounts
Demat account holders have the option to freeze their accounts for a specific duration, as per the requirement. It is done to avoid any unpredicted debit/credit into the Demat Account. To avail of the freezing option, the account holder needs to hold a specific quantity of securities in his/her account.
The National Securities Depository Limited (NSDL) keeps extending various facilities for the Demat account holders. Instead of physical submission of the slip, the account holder may send instruction slips electronically to the depository participant. It is done to make the process faster and less cumbersome.
What are the documents required for a Demat Account?
You may perceive a Demat account just like a bank account that holds securities instead of money. The Demat account opening procedure and the mandatory documents required are similar across organizations. Before submitting any document having an expiry date, ensure that it is valid on the submission date.
Here is the detailed list of documents that you need for opening a Demat Account.
Proof of Income
You may submit any one of these as proof of income:
- A photocopy of the Income Tax Return (ITR) Acknowledgement slip was submitted to the Income Tax Department during tax filing.
- Certificate of Net Worth or photocopy of the annual statement of accounts authenticated by a Chartered Accountant.
- Salary Slip of the current month or Form 16.
- A statement of Demat Account holdings with an eligible Depository Participant.
- The latest statement of the bank account contains the income history for the last 6 months.
- Any documents that prove ownership of assets through self-declaration.
Proof of Identity
You may submit any one of these as proof of identity:
- PAN card having a valid photograph.
- Aadhaar card / Voter ID card / driving license/ Passport.
- Identity card having applicant’s photo which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council, and Credit/Debit cards issued by Banks.
Proof of Address
You may submit any one of these as proof of address:
- Passport/Voters Identity Card/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Flat Maintenance bill/Insurance Copy.
- Utility bills like landline telephone bill, electricity/gas bill which is not more than 3 months old.
- Bank Passbook which is not more than 3 months old.
- Self-declaration of new address given by judges of High Court and Supreme Court.
- Address proof which is issued by bank managers of Scheduled Commercial Banks/Scheduled Co-Operative Bank/Multinational Foreign Banks, Gazetted Officer / Notary public, Member of Legislative Assembly, Member of Parliament.
- Identity card containing address which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council.
- Address proof given in the name of the spouse
How to open a Demat Account?
You can open a Demat Account by following these easy steps:
- Firstly choose a Depository Participant (DP) with whom you would like to open a Demat Account.
- Afterward, fill out an account opening form and attach a passport-sized photograph along with photocopies of the required documents stating proof of address and identity. You should have a PAN card unless otherwise exempted. Remember to carry the original documents along for verification.
- The DP will give you a copy of the rules and regulations, the terms of the agreement, and the necessary charges that you need to pay.
- During an In-Person Verification, a representative of the DP would contact you to verify the details provided in the account opening form.
- After processing of the application, you will get an account number/ client ID from the DP. These details will be required to access the Demat Account online.
- When you become a Demat account holder, you would be required to pay an annual maintenance fee for the maintenance of your account. Additionally, you would be charged a transaction fee for conducting buying/selling transactions via the Demat Account. In case your shares are in physical form, the DP may charge you a separate fee for the dematerialization of the shares.
- You can open a Demat Account without having any shareholdings. Moreover, there’s no mandate to maintain a minimum balance.