What Is Demat Account? Meaning, Types and Benefits!

What is a Demat Account?

A Demat account, short for dematerialized, is akin to a bank account, but it stores securities instead of money. Before 1996, trading of securities was carried out with papers, which were cumbersome to manage and handle. A Demat account makes this easier as it stores the securities in electronic form and eliminates the hassle of physically handling paper shares. The prime objective of a Demat account is to make the process of holding shares, bonds, Mutual Funds, government securities, Insurance, and ETFs easier.

 

A Depository Participant (DP) acts as an intermediary between investors and the depository, which electronically stores securities. A Demat Account is opened with these DPs that mainly include NSDL and CDSL. You can move shares from your physical share certificate to your Demat Account as soon as the account is established. After that, the shares are dematerialized and electronically stored in the Demat Account. Via the Demat Account, you may purchase and sell shares, mutual funds, and other securities. The Shares are credited to or debited from your Demat Account at the completion of trade.

What is Dematerialization?

Dematerialization is the process of moving physical share certificates to electronic format. Earlier, investors were given physical certificates as proof of ownership every time an investor bought a company’s shares. The process of dematerialization converts those certificates and holds them electronically in a demat account.

 

A Demat account is a primary requirement to start your investment journey and create wealth. These tangible shares are present as digital entries in electronic records maintained by depository participants, such as NSDL and CDSL. 

Importance of a Demat Account

A Demat account allows investors to engage conveniently in online share trading. They spared the trouble of storing actual certificates, ensuring security against issues like certificate loss, damage, or forgery. Since the securities are held electronically, a demat account also eliminates the problem of document custody and makes record-keeping easier.

 

Investors can buy, sell, or transfer securities from any location as long as they have internet access. Additionally, a demat account simplifies the process of exchanging assets for investors and monitors their portfolios.

 

Difference between Demat and Trading Account

While trading accounts are used to execute trades, Demat accounts are used to hold securities, such as stocks and ETFs in the electronic format. On the other hand, a trading account is used to carry out buy and sell orders on the stock market.

 

An account number is provided to investors upon opening a demat account, and this number is utilised for the electronic transfer of securities from physical to Demat mode. In contrast, you open a trading account with a broker in order to place buy and sell orders.

 

A trading account is used for active trading, whereas a Demat account is exclusively used for holding assets in electronic format. Prior to being transferred to the associated Demat account for electronic keeping, securities are first purchased through the trading account. In a similar vein, before submitting a sell order, securities are moved from a Demat account to a trading account.

 

How does a Demat Account work?

An investor first opens a Demat account with a Depository Participant (DP) or broker by providing KYC documentation for verification. During the process, an investor also opens a trading account to easily sell shares, regardless of your location. The investor starts trading securities as soon as the account is approved. In India, depository participants (DPs) or a stock broker are authorised to approve the demat account. The process of online demat account opening with in-person verification (IPV) takes somewhere between a few hours to 48 hours. However, the offline process can take 2 to 3 days.

 

The trading account allows investors and traders to place orders, which brokers execute on the stock exchange. Stock exchanges (like NSE and BSE) confirm the orders and notify the depository. The amount of securities acquired is credited to the trader’s Demat account. The securities are also released upon sale. The DP serves as a go-between for traders and depositories.

 

The DP sends them account statements on a regular basis that include transaction and holding details for tax and other purposes. Traders can purchase and sell securities with a Demat account from the comfort of their homes via the Internet and mobile platforms.

 

Features and Benefits of a Demat Account

From easy securities holding to faster fund transfer, the ranging features of a Demat account offer numerous benefits. These features also help you take advantage of the capital market by investing in securities. Some key features and benefits of opening a demat account are:

• Hassle-free Transactions: Investors can engage in equity trading from anywhere without having to submit physical documents every time.
• Eliminates the Risk of Bad Delivery: A Demat account settles transactions promptly without any concerns regarding the mishandling of physical share deliveries.
• Convenient Record-keeping: All transactions and holding details are maintained electronically for easy record-keeping and portfolio monitoring.
• Safe and Secure: There is no risk of losing, damaging or forging physical documents with a demat account.
• Flexibility: Investors can access their demat account and trade from any location at their convenience using online share trading platforms. 
• Simplified Procedures: The transfer of securities becomes faster and simpler without the requirement of a paper trail.
• Cost Savings: A demat account saves costs associated with stamp duty and registration charges for the physical transfers of shares.

 

Types of Demat Accounts

In the Indian stock market, every investor has access to a variety of Demat accounts. Investors must select the right kind of demat account in order to manage their securities and comply with certain investment criteria properly.

 

Regular Demat Account

The most popular demat account among Indian citizens is the standard demat account. It enables the electronic holding and trading of equity shares and other securities by investors. To participate in activities such as Futures and Options, a normal demat account needs to be connected to a trading account. The annual maintenance charge (AMC) associated with this account varies depending on the broker. SEBI developed the Basic Services Demat Account (BSDA) in response to the demands of small investors.

 

BSDA - Basic Service Demat Account

Small investors can now afford and easily access demat account services with the help of the Basic Service Demat Account (BSDA). To meet the demands of those with fewer assets, it has some restrictions and concessions. For instance, the investor can benefit from lower maintenance costs if the value of the securities in a BSDA is less than ₹2 lakhs. For those who are new to investing or have a modest investment portfolio, this account is perfect. For instance, the BSDA would be a more affordable choice for a college student who wants to invest a small sum in stocks or mutual funds.

 

Repatriable Demat Account

The repatriable demat account is only intended for Non-Resident Indian (NRI) investors. It enables them to make investments in the Indian stock market and makes it easier for them to transfer money outside of India. For the purpose of repatriation, NRI investors must link their NRE (Non-Resident External) accounts to the demat accounts. It also gives people who want to invest in India the freedom and convenience of having the option to send money elsewhere.

 

Non-repatriable Demat Account

The non-repatriable demat account is intended for non-resident Indians (NRIs), just like the repatriable demat account. It does not, however, allow the transfer of money outside of India. Rather, an NRO (Non-Resident Ordinary) account, where the money stays in India, is connected to the non-repatriable demat account. NRI investors can repatriate up to $1 million USD per year with this account. It enables non-resident Indians (NRIs) to keep their money inside the Indian financial system while participating in the country's stock market and reaping the rewards of economic progress.

 

Depository and Depository Participants

The prime difference between a depository and a depository participant (DP) is that a depository holds securities electronically, whereas DPs ensure smooth transactions, enhanced security, and efficiency. In India, depositories that electronically hold securities in dematerialized form are National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

Depository participants (DPs) act as an interface between the depositories and the investors. They open and maintain demat accounts for investors. Popular DPs include stock brokers, banks, custodians, and other entities registered with the Securities and Exchange Board of India (SEBI).

 

How to open a Demat Account online?

The number of new Demat account openings reached a record high of 42 lakhs in December 2023, bringing the overall number to 13.93 crores. It clearly indicates that opening a demat account is essential for every investor looking to create wealth and trade securities. Here's how you can open a demat account online:

 

Choosing a Depository Participant (DP)

Select a DP first, such as a bank or broker that allows online Demat account opening.

 

Starting the Application Process

Go to the DP website and select the Demat account opening option. Complete the online application by entering relevant information.

 

Verifying Documents and Account Activation

The DP will electronically verify the shared document within the process of eKYC. After completing KYC and document verification, the DP will allocate an account number and activate the Demat account. Additionally, the DP will email the login information for online account access.

 

Funding the Account

The stock broker will fund the Demat account by sending funds to the DP from your associated bank account. Popular online techniques include net banking, UPI, and so on.

 

Commencing Transactions

Through the trading website or mobile app, you can now make orders to purchase and sell stocks and other securities online. Every transaction will appear instantaneously in your online Demat account statement. 

 

Maintaining the Account

Make sure you routinely check your account statements and let the DP know if there are any inconsistencies. For Demat accounts, DPs may impose annual maintenance costs that can be paid online. All things considered, opening a Demat account online is an easy, paperless, and practical process.

 

Why Open a Demat Account with Almondz Trade?

Almondz Trade is a reliable and renowned online stock broker committed to offering trustworthy online share trading and demat account services. With cutting-edge features and all-around support, Almondz Trade keeps your investment aligned and in control of your financial future. There are several benefits of opening a demat account with Almondz Trade:

• Dedicated RM Support: Almondz offers research calls and advisory that are always backed by dedicated and personalised RM support.
• Guest User Login: This useful feature of the trading platform allows you to surf the watchlist without opening Demat.
• Custom-built Investment Roadmaps: The platform also provides custom-built investment roadmaps to assist you in meeting your goals. 
• Margin and Option Calculator: The margin calculator allows you to calculate the accurate margins for Future and Options trading, whereas the option calculator allows you to calculate the price of an option based on factors such as the underlying price, strike price, volatility, interest rate, and dividends.
• GTT Order Placement: It allows traders to place an order without constantly marketing the stock market.
• Script Overview: Watch the price and charts on the particular stocks. 
• Scanner Feature: Scan the stocks to know about everything. Use the feature to search the market for companies that fulfil a certain set of criteria. 
• Light and Dark Theme: The feature enables traders and investors to invest and create wealth with suitable visual perception.

Eligibility to Open a Demat Account

Anyone can open a demat account with Almondz Trade, but there are certain criteria that you will have to meet. You have to consider these prerequisites before opening a Demat account and getting started as a trader.

• Indian Resident: Only Indian citizens and NRIs residing in India can open a Demat account.
• Minimum Age: The minimum age to open a Demat account is 18 years. Minors above 10 years can open it along with a guardian.
• Required Documents: You need to submit address and identity proof documents like an Aadhaar, PAN card, passport, etc., along with income proof.
• Income Criteria: Most brokers don't have any minimum income criteria, but some may require an annual income of Rs. 1-2 lakhs.
• Documents are needed for Demat Account Opening
• The process of opening a Demat account also involves supplying necessary documents for address and income verification. The most important documents required to open a demat account are as follows:
• PAN Card: You are required to submit the Permanent Account Number issued by the Income Tax Department. In accordance with SEBI requirements, it is required for all demat accounts.
• Address Proof: You will need to supply the documents to verify address proof. For verification, you can submit an Aadhaar card, passport, voter ID, driver's licence, and the latest telephone/electricity/gas bills (not older than 3 months).
• Bank Details: Cancelled personal cheque leaf with applicant's name printed on it or latest bank statement (not older than 3 months) showing name, address and IFSC code. It is required to link the bank account with the demat account for fund settlement. 
• Demat Account Opening Form: Standard form available to be filled with DP. 
• In-Person Verification: Applicant needs to upload a his/her photograph and complete an e-sign for verification of documents and signatures. 

How to Add Nominee in Demat Account

It is critical to add a nominee to ensure a smooth transfer of money to loved ones and transfer your financial legacy.

 

Need for a Nominee in a Demat Account

A Demat account holder must designate one or more people who will be eligible to inherit the assets and securities in the account in the event of the account holder's passing. The legal heirs would have to go through a drawn-out procedure to get a succession certificate or letter of administration from a court in order to claim the assets if there was no nominee.

 

Importance of Having a Nominee

Designating a nominee expedites the procedure of distributing assets and securities to the legitimate recipient following the account holder's demise. This facilitates the nominee obtaining transfer of securities without the required legal paperwork. The depository participant also processes the nominee's claim more quickly.

 

How to Add a Nominee

Investors must complete and submit a nomination form, which is accessible from the depository participant (DP), in order to add a nominee. Information such as name, address, and relationship to the nominee is needed on this form. Investors may designate a maximum of three nominees and designate the proportion of securities to be assigned to each. For confirmation, each nominee must sign the form.

 

Changing or Deleting a Nominee

If the address or percentage allocation of the nominee changes, a new nomination form must be completed. A written cancellation request must be submitted in order to remove an existing nomination. Additionally, investors may review and update their nominations on a regular basis.

 

Rights of the Nominee

The nominee's rights are limited to obtaining securities from the demat account in the case of the account holder's demise. During the account holder's lifetime, the nominee has no control over the demat account. If the candidate passes away before the account holder, the nomination is automatically cancelled.

 

How to Transfer Shares in Demat Accounts

Transferring shares from one demat account to another is a common practice. Investors must understand how to transfer shares, whether they have changed brokers, consolidated their interests, or donated shares to family members. Steps you need to take to transfer shares in Demat Accounts:

 

Step 1 - Fill Delivery Instruction Slip (DIS)

The investor needs to fill out a DIS form available with their current broker/DP to transfer shares from one demat account to another. Details like name, demat account details, ISIN of the security, quantity to be transferred, and signature are required on the DIS.

 

Step 2 - Submit DIS to the Current Broker

The duly filled and signed DIS needs to be submitted to the broker/DP where the investor's existing demat account is maintained. It is called the transferor broker/DP.

 

Step 3 - Depository Processing

The transferor broker will then forward the electronic DIS instruction to the depository, i.e. NSDL or CDSL. The depository will verify the details and block the shares in the transferor account.

 

Step 4 - Shares Debited from Old Account

Once verified, the depository will debit the number of shares mentioned in the DIS from the transferor/existing demat account.

 

Step 5 - Shares Credited to New Account

Simultaneously, the same quantity of shares will be credited to the transferee/new demat account provided by the investor. This is maintained with the broker/DP where the investor wants to transfer shares.

 

Step 6 - Reflection in the New Account

Within 2-3 working days, the transferred shares will be reflected or visible in the investor's new demat account. Both brokers/DPs involved will update the investor about the transfer status.

 

Step 7 - Preserve DIS

After processing, the DIS form is preserved by the transferor broker as a record of the off-market transfer for future reference if required.

 

Key Terms Related to Demat Accounts

• BO ID - Beneficiary Owner ID (BO ID) is a unique client identifier number issued by the depository to each demat account holder.
• CDSL - Central Depository Services (India) Limited, one of the two depositories in India providing demat services.
• Delivery Instruction Slip - DIS Form used for off-market transfer of securities between demat accounts.
• ISIN - International Securities Identification Number is a unique code to identify securities like stocks and bonds traded on Indian exchanges.
• NSDL - National Securities Depository Limited is the other depository apart from CDSL that provides demat services in India.

 

A demat account will be a necessary tool for every investor and trader to engage in the expanding capital markets in India. To start your investment journey and secure your financial tomorrow, choose AlmondzTrade as your partner in growth. Open your demat account today to benefit from user-friendly interface, all-in-one screener and dedicated customer support. Ensure a seamless and professional investing experience by choosing us.