How to Open a Demat Account? Complete Guide

How to Open a Demat Account? Complete Guide

What is a Demat Account and How to Open a Demat Account? An important question that every individual must know before trading or investing in the stock market. In fact, investing in the stock market is not possible without a Demat account. Furthermore, the stock market is now the most attractive investment avenue. Moreover, after demonetization, most people park their savings in the stock market. Therefore, in this article, we shall understand all the concepts of the Demat account.

The most important question that comes to the head is why a demat account is required? Let us see the answer to it.

Why Demat Account?

Investing in the stock market is one of the most popular activities today. Therefore, how to open a demat account is one of the most popular questions among investors. In fact, the reason to do so is also right i.e. higher returns in the stock market. To turn into an investor in the stock market, one must open a demat account first. It is the first step towards investing. In fact, to transact in shares or securities opening a demat account is the primary step. Therefore, first thing that every investor should know in the stock market is the meaning of account.

What is Demat Account?

Demat account is also known as a dematerialized account. In this account, the investor can keep or hold his shares or securities in electronic form. To put it another way, just like a bank holds the money in the account. Similarly, the account holds shares and security in the account.

If an investor is holding shares in physical form, the shareholder first needs to convert it into electronic form. Therefore, the investor can trade in those physical shares only after they are transferred into the account or converted into electronic form.

Also Read – Difference Between Demat and Trading Account

Let us now take a look at the benefits of the Demat account.

Benefits of Opening Demat Account

The following are the benefits of opening a Demat account.

  • Less Risky

The loss of shares and securities due to theft, damage, or any unforeseen event is not there in the case Demat account. In fact, with an account, there is no requirement to keep the shares in physical form. Therefore, the account is lesser risky.

  • Odd Lots

Before the Demat account, the buying of shares had to be done in fixed lot size. However, with the introduction of the Demat account; the investor can purchase the shares or securities of any quantity. Therefore, an account provides an investor the convenience to deal in odd lots.

  • Lower Cost

The Demat account reduces the cost of investing in the stock market. Earlier, dealing in physical securities was a costly affair. In fact, many charges such as stamp duty, handling charges and other charges were applicable. However, with an account, such costs are eliminated.

  • Easy to Maintain

Shares and securities in Demat form are easy to maintain. Furthermore, the portfolio in the account can be viewed easily. Moreover, it becomes easier to take investment decisions when shares can be tracked in a single account.

Since we now know the benefits of demat account, it is essential to know where to open a demat account. In this segment, we shall help the investor in understanding that where he can open a Demat account.

Where to Open Demat Account?

The investor can open Demat account at CDSL and NSDL. They have the authority to open the Demat account. In fact, CDSL and NSDL are two depositories of the country. The investor can reach out to the depository participants that function under either of the two depositories to open an account. The depository participants include the most famous brokers or brokerage houses in the country. Therefore, an investor can approach any of the deposits or participants to open an account.

Before understanding how to open a demat account online, let us understand the meaning of Depository and Depository Participant

Meaning of Depository and Depository Participant

CDSL and NSDL are the only two depositories in India. They maintain the shares and securities in dematerialized form.  The depository participants function under the depository. In fact, depository participants are an organization in the financial sector and banking sector. Moreover, they can become depository participants only after they get permission from the Depository and Securities and Exchange Board of India (SEBI). For instance, few of the popular depository participants of India include HDFC SecuritiesKotak SecuritiesIIFLZerodhaICICI DirectSharekhan, etc.

In the next segment of the article, we shall understand how an individual can open an account with a broker or open a demat account online.

How to Open Demat Account Online?

Open Demat account online is every individual’s query who wants to invest in the stock market. The procedure for opening an account is as follows:

  • Firstly, the individual should visit the depository participant. The depository participants are the brokers with whom an individual shall deal or place orders. The depository participants can be a bank or an agent who is operating as a link between the depository and the investor. In addition, an individual looking to open a Demat account online must visit the website of the depository participant.
  • Secondly, fill the demat account opening form. The individual must submit the documents that are compulsory for account opening. The following documents must be submitted along with the account opening form.
  1. PAN number.
  2. Identity proof that includes Aadhar Card, Driving License, Passport, etc.
  3. Residence proof like Ration Card, Aadhar Card, Voter ID card, etc.
  4. Passport size photo with self-attestation.

However, if a corporation wants to open a Demat account, the following additional documents need to be compulsorily submitted along with the account opening form.

  1. The identity proof and residential proof, PAN number, photograph, and DIN of the directors of the company.
  2. Copies of the balance sheet for the last two financial years.
  3. The shareholding pattern of the company.
  4. List of authorized
  5. Copy of the resolution for investment in securities.
  6. Copies of Certificate of Incorporation, MOA
  • In the third step, the depository participant and investor shall enter into an agreement. Furthermore, the agreement shall be binding along with certain rules and regulations. In addition, the investor must carefully read the copy of the agreement given by the depository participant.
  • When the agreement between the investor and depository participant is signed, the documents verification is done. Furthermore, the Demat account number is given to the investor after successful verification. The verification process takes around 10 to 15 days. Therefore, the investor can indulge in the trading of shares and securities through the account.
  • The investor can regularly monitor his transaction through the Demat account. In addition, the account updates all the transactions automatically whenever the transaction takes place.

The most important criteria while selecting a depository participant apart from their service is the charges on the Demat account. Therefore, after learning about how to open a Demat account, we shall have a look at the charges of opening an account.

Charges of Demat Account

Once the investor opens the Demat account, there are certain changes that need to be paid. The list of charges with account opening are as follows:

  • Charges on Opening a Demat Account

This is a one-time Demat account opening charge. However, many depository participants provide a free opening of Demat account these days.

  • Demat Account Maintenance Charge

The Demat account maintenance charges are applicable on annual basis. In addition, these charges vary from one broker to another. In fact, the annual account maintenance charges range from Rs. 300 to Rs. 700.

  • Brokerage

A brokerage charge is a charge that is applicable to every order. The brokerage charges also vary from one broker to another. In fact, while opening a Demat account this is the most important consideration by the investor. Furthermore, the components of brokerage cost are GST, stamp duty, security transaction tax, service charge, and different types of cess.

The brokers apart from charging the above charges, levy different charges as well. In fact, such other charges are in relation to the services given by the broker. Therefore, some of the charges for such services are:

  • Transfer of Shares

When an investor transfers shares from one Demat account to another, he has to pay some charges. Therefore, the process of transfer of shares involves payment of nominal charges by the transferor.

  • Charges on De-materialisation

When an investor is holding shares in physical form, he must pay certain charges to convert them into electronic form. Therefore, the conversion process involves payment of service charges that vary from broker to broker.

The above points highlight how an individual can open an account and what are the different charges. In the next segment of the article, you will see answers to some of the basic queries that arise in the minds of investors while opening a Demat account.

Can an Individual Open More than One Demat Account?

An individual can open any number of Demat accounts. There is no threshold limit for opening an account. In fact, the investor should use the same PAN number with different brokers. However, there is a limitation on part of depository participants. To put it another way, a depository participant cannot open multiple accounts of an individual beyond a certain limit. Hence, an individual must check with the depository participant before opening the account.

Can the Individual Open a Joint Account?

An individual can open a joint Demat account. In fact, the joint account can be with his/her spouse. However, there can be a maximum of three holders in a single Demat account. In addition, out of the three persons, one person shall be the main holder of the account, and the other two persons shall act as joint holders.

Joint Demat account brings us to an important question of whether a minor can be a joint holder or whether the account can be opened in the name of joint holders. In this segment, we shall discuss and resolve such queries. 

Minor and Demat Account

A minor can become a joint holder in the Demat account. However, the Demat account can also be opened in the name of the minor. In that case, the guardians i.e. father or mother shall maintain such account. In addition, if the minor is not having his/her father, the mother shall act as the guardian. Furthermore, if the minor does not have parents, the court shall appoint a guardian. Therefore, the guardian shall operate the minor’s account until he becomes a major.

About Nifty Trading Academy

To become successful in the stock market, an individual must possess all the important knowledge. Opening a Demat account is just the basic step. To help you gain knowledge, Nifty Trading Academy educates beginners to become successful traders or investors with a different range of courses. We provide different training courses to the individuals that include technical analysis of stock and much more. In fact, with our courses, you will be able to take aright trading position in the market. Therefore, reach us to know more about our different stock market courses. You can contact us via email or phone.