What is a Dematerialisation (Demat) Account?

Investing in equity shares in physical form entails a lengthy procedure, a lot of paperwork and risk of getting fake shares. In order to keep the entire experience easy and streamlined, a Demat account is required. While trading online, the Demat account is used to hold shares and securities in dematerialised/electronic format. Under dematerialisation, your share certificates are converted from physical form to electronic form so as to increase their accessibility.

You need a Demat Account number to settle trades electronically. Having a Demat Account allows you to buy shares and store them safely. It is similar to a bank account in which you hold deposits with the bank and the record of debit/credit balances are maintained in a bank passbook. In the same way, when you purchase or sell shares, it will be credited or debited to/from your Demat Account respectively. It can be used to hold a variety of investments like equity shares, exchange-traded funds, mutual funds, bonds, and government securities. You can open a Demat Account without possessing any shares. and can maintain a zero balance in your account.

Benefits of a Demat account

These are some of the advantages of a Demat account:

• Lower risks:

  Physical securities are risky due to thefts, losses, or damages. In addition, bad deliveries or fake securities pose further risks. These risks are completely eliminated with the opening of a Demat account, which provides holders with the option of holding all their investments in electronic form.

• Easy holding:

  Maintaining physical certificates is a tedious job. Moreover, keeping track of their performance is an added responsibility. Demat account holders can make it more convenient to hold and track all their investments through a single account.

• Odd lots:

  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 accounts eliminate this issue.

• Reduced costs:

  Physical certificates involved several additional costs, such as stamp duty, handling charges, and other such expenses. These extra expenses are completely eliminated with Demat accounts.

• Reduced time:

  Due to the elimination of paperwork, the time required in completing a transaction gets reduced. The reduced time requirement enables the account holder to make more purchases and sales of security holdings in a shorter time and with greater efficiency.

Features of Demat account

• Easy share transfers:

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.

• Loan facility

Several lenders provide loans against securities that are held in the Demat account of the borrowers. These holdings are used as collateral to avail loans by the account holders.

• Faster dematerialisation & rematerialisation of securities:

If you have a Demat Account, then the conversion of the securities into different forms becomes a simple task. You can give necessary instructions to your depository participant (DP) for dematerialisation 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

Demat accounts are operated electronically, which means these can be accessed using multiple modes. These accounts can be accessed through the Internet using a computer, smartphone, or other smart devices.

• Corporate actions

Having a Demat Account can help you avail the 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 issue is updated in the shareholders’ Demat Accounts.

• Freezing Demat accounts:

Demat account holders can freeze their accounts for a certain period, if required. This option can be beneficial if one wants to prevent unexpected debit or credit into one’s Demat account. The freezing option is also available for a specific quantity of securities held in the account.

• Speed E-Facility

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 which hold securities instead of money. The Demat account opening procedure and the mandatory documents required are similar across organisations. 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.

A. Proof of Income

You may submit any one of these as a proof of income:

• A photocopy of the Income Tax Return (ITR) Acknowledgement slip 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.
• Latest statement of bank account containing the income history of last 6 months.
• Any documents that prove ownership of assets through self-declaration.

B. Proof of Identity

You may submit any one of these as a 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.

C. Proof of Address

You may submit any one of these as a 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.
• Afterwards, fill 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 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 Demat Account online.
• When you become a Demat account holder, you would be required to pay an annual maintenance fee for maintenance of your account. Additionally, you would be charged a transaction fee for conducting buying/selling transaction via the Demat Account. In case your shares are in physical form, the DP may charge you a separate fee for dematerialisation of the shares.
• You can open a Demat Account without having any shareholdings. Moreover, there’s no mandate to maintain a minimum balance.