Most beginners are usually put off before they even begin. The jargon seems heavy, the paperwork longer than their college assignment, and the entire process involves nothing but cryptic terms at every step of the way. Take it easy, because opening a demat account is much simpler than your last mobile recharge. Here are some things you should know before you begin.
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Do you need one?
If you wish to trade or invest in any of the Indian exchanges. Yes, you absolutely do. SEBI regulations and the Depository Act mandate that a demat account is compulsory to buy and sell shares. Without a demat account, no trade can take place.
How to go about it?
The entire process is now digitised and it takes less time to learn how to open a demat account than it takes to select a new mobile phone plan. Select a broker, enter your mobile number, upload your documents and complete the KYC procedure. Most brokers, including Angel One, claim that they can get your trading started within an hour. Make sure that you have your PAN card, proof of identity, residence and bank account details and a passport size photograph handy. They may also ask for your income proof.
Is it free?
While opening an account is free of charge, maintenance charges apply. Brokers tend to charge an annual fee between 300 and 700 rupees to keep your account active. There is a waiver for the first year available. Always read the fine print to know what you will be paying. Small investors can also ask for a basic service account that charges lower fees up to a certain threshold. Converting old physical shares into electronic form usually costs between 5 and 10 rupees per share.
What does it actually mean?
A dematerialized or demat account meaning is basically a digital wallet where your stocks, mutual funds, bonds and ETFs are kept. Every transaction made to your account, be it a purchase or a sale, is reflected as a credit or a debit respectively. This concept was introduced in 1996 when the National Stock Exchange decided to do away with paper-based transactions. Old paper shares can be dematerialised and become digital shares.
Why is it useful?
Any certificates owned in paper form could be stolen, forged, burnt or misplaced. Going fully digital means that you need not worry about these risks any longer. Additional benefits include automatic adjustment of shares in case of a bonus issue or a merger. Nomination facilities make sure that in case of an unfortunate event, your shares are transferred to your nominee easily.
How do trades actually work?
Linking your trade account, bank account, and demat account. As and when you make a purchase, your bank account gets debited and your demat account gets credited. When there is a sale, the exact opposite happens. The T+1 settlement cycle means that any trade you make gets completed on the next business day. The depository, such as NSDL and CDSL, keeps an eye on everything.
Things to remember
Do not forget about two of your accounts and do not multi-broke. Fill up the nomination form as soon as you open the account. Read the charges carefully before signing up. Always go through your monthly account statement to ensure that there are no irregularities. It takes two minutes to do, but it could save you a lot of headache in the future.
Final thoughts
Opening your demat account should not be a stressful experience. It ought to be quick, simple and painless. Don’t rush through it, make sure that you know everything about the charges. You should also begin with small amounts since all market investments come with risk. Never gamble more than you can afford to lose.
