“Demat account” is one of the most commonly used terms in India. However, if you are a beginner, you may have a few doubts about demat accounts. So, here is a beginner’s guide to understanding everything you need to know about such accounts.
History of Demat Accounts
If you want to trade in securities in India, you must open demat account, which will hold all the securities you own in a dematerialised or electronic form. However, it was only in 1996 that demat accounts were introduced in India.
Before that, people used to have paper certificates for the securities they owned. Thanks to demat accounts, all the paperwork related to trading in securities is a thing of the past.
Factors To Consider Before Opening A Demat Account
If you are an experienced trader who does not need a lot of support from a broker or depository participant (DP), then you can open a demat account with a discount broker. A discount broker charges lower fees than full-service brokers but does not provide advisory services.
However, if you are a beginner who needs a lot of support in the form of insights and research reports, then you should open a demat account with a full-service broker. That said, the charges of a demat account vary from broker to broker.
So, you should carefully analyse the fees before opening an account. You must also consider the ease of account opening.
There are brokers who have a fairly easy demat account opening process; however, others follow a tedious process. Then, the quality of the trading software is another factor. You must always find a broker who has an easy-to-navigate website and a trading app.
Charges Associated With A Demat Account
When you open a demat account, you will be required to pay several kinds of charges to your broker or DP, including annual maintenance charges (AMC), dematerialisation or rematerialisation charges, brokerage fees, etc.
AMC varies from broker to broker. Typically, a broker deducts AMC directly from the balance you maintain with him. Brokerage fee is levied on the buying and selling of securities.
Dematerialisation charges are payable when you convert your physical securities into an electronic form. However, rematerialisation charges are imposed when you convert your electronic securities into a physical form.
Can You Have Multiple Demat Accounts?
As per the prevailing regulations in India, you can have as many demat accounts as you want. Typically, people keep one demat account for investing, wherein they buy and hold shares for a long period of time and keep one demat account for trading, wherein they buy and sell securities frequently.
However, bear in mind that if you have multiple demat accounts, you will be paying all the charges on such accounts to multiple brokers. In other words, you may be paying a lot. Hence, you should have more than one demat account only if you need to.
Documents Required To Open A Demat Account
You need to provide proof of identity, which can be a PAN card, driving license, passport, Aadhaar card, or voter ID.
Then, you need to provide proof of address, which can be an Aadhar card, voter ID, passport, driving license, utility bills, or even a bank statement. You must also furnish bank account proof, like a cancelled cheque or bank statement. Then, recent passport-sized photographs are required. You also need to furnish a copy of your signature.
Conclusion
Opening a demat account is one of the most important steps in your trading journey. Therefore, you should do it extremely carefully. You must ask everyone in your friends and family (particularly those who participate in the stock market) about various brokers and which ones they prefer. Then, you should read reviews available online. Finally, you should consider all the factors explained above and then take your call.
