Investing in equity shares in physical form involves a lengthy process and a lot of paperwork and the risk of getting fake shares. To keep the whole process easy and streamlined and to do it electronically, you need a demat account.
What is Dematerialization (Demat) Account?
A demat account is an account for holding financial securities- equity or debt in electronic form. Demat accounts in India are maintained by two depository organizations, National Securities Depository Limited and Central Depository Services Limited. A depository participant, such as a bank, acts as an intermediary between the investor and the depository.
An internet password and a transaction password are required to access the demat account. Thereafter transfer or purchase of securities can be initiated. The buying and selling of securities on the dematerialized account is done automatically after the transaction is confirmed and completed.
Investing in equity shares in physical form involves a lengthy process and a lot of paperwork and the risk of getting fake shares. To keep the whole process easy and streamlined and to do it electronically, you need a demat account.
Having a demat account allows you to buy shares and store them securely. It is similar to the bank account in which you keep the money and the record of debit/credit and balance is kept in the bank passbook. Similarly when you buy or sell shares, it is respectively credited or debited to your demat account. It can be used to hold various investments like equity shares, exchange traded funds, mutual funds, bonds and government securities.
What are the facilities offered by Demat account?
1. Transfer of Shares
A demat account is used to transfer the share holdings of an investor. This can be done by using Delivery Instruction Slip (DIS) to trade the shares. You can provide all the necessary details in this slip for smooth conduct of the transaction.
2. Loan Facility
The securities held in your demat account can facilitate you with various types of loans from the bank. You can pledge these securities as collateral to secure the loan from your bank.
3. Dematerialization and Rematerialization
If you have a demat account, converting securities into different forms becomes a simple task. You can give necessary instructions to your Depository Participant (DP) for dematerialization i.e. conversion of physical share certificates into electronic form. Conversely, you can also get the electronic securities converted back into physical form as per your requirements.
4. Corporate Actions
Having a demat account can help you enjoy the benefits associated with owning securities. Whenever a company offers dividend, interest or refund to its investors, all demat account holders automatically avail these benefits. In addition, corporate actions relating to equity shares such as share splits, rights shares or bonus issues are updated in the demat accounts of the shareholders.
5. Multiple Access Options
The demat account can be accessed using multiple media due to its electronic operation. You can conduct investment, trading, monitoring and other security related operations using the Internet access on a computer, smartphone or other handheld device.
6. Freezing Demat Accounts
Demat account holders have the option to freeze their accounts for a specific period as per the requirement. This is done to avoid any unexpected debit/credit in the demat account. To avail the freezing option, the account holder needs to hold a certain amount of securities in his account.
7. Speed e-Suvidha
National Securities Depository Limited (NSDL) keeps on providing various facilities for the demat account holders. Instead of submitting the slip physically, the account holder can send the instruction slip electronically to the depository participant. This is done to make the process faster and less cumbersome.
How to Open Demat Account?
You can open a demat account by following these easy steps:
First of all, select a Depository Participant (DP) with whom you want to open a Demat account.
Afterwards fill up an account opening form and attach one passport size photograph along with photocopies of required documents with address and identity. You must have a PAN card. Remember to carry the original documents for verification.
– The DP will give you a copy of the terms and regulations, the terms of the agreement and the required charges, which you will have to pay.
During personal verification, a representative of the DP will contact you to verify the details provided in the account opening form.
After processing the application you will receive an account number / customer ID from the DP. These details will be required to access the demat account online.
– When you become a demat account holder, you will have to pay annual maintenance charges for the maintenance of your account. In addition, you will also be charged a transaction fee for buy/sell transactions through a demat account.
You can open a demat account without any shareholding. There is no mandate to maintain minimum balance.
What are the documents required for Demat account?
A demat account is similar to a bank account which holds securities instead of money. The process of opening a demat account and the required documents are the same across all organisations. The documents required to open a demat account are as follows:
1. Proof of Income: One photocopy of Income Tax Return (ITR) acknowledgment slip or salary slip of current month or Form 16 or bank statement of last 6 months.
2. Proof of Identity: PAN Card or Aadhar Card / Voter ID Card / Driving License / Passport with a valid photo.
3. Proof of Address: Passport / Voter ID / Aadhar Card / Ration Card / Registered Patta or Sale Agreement of Residence / Driving License / Flat Maintenance Bill / Insurance Copy.
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