Everything you need to know about a Demat account

You need a Demat account to invest in shares, bonds, and debentures traded in the capital markets

2020 pushed many Indians towards the capital markets. The reason is clear: despite their inherent risk, the capital markets can help investors beat inflation and create a wealth corpus in the long run. They can earn investors decent returns, although a Demat account is necessary to leverage the benefits of the equity market. Read on if you're unsure about the meaning and benefits of a Demat account.

What is a Demat account?

'Demat' in the term Demat account stands for dematerialisation. According to the National Securities Depository Limited (NSDL), dematerialisation is the process using which you can convert physical certificates into electronic balances. Holding a dematerialised account or Demat account allows you to own your securities electronically and transfer any security from your account to any other account.

Securities refer to various kinds of financial instruments that are traded in the capital markets. It includes shares, debentures, bonds, mutual fund units, commercial papers, certificates of deposits, government securities, etc.

How to open a Demat account?

You can open a Demat account via a registered Depository Participant (DP). DPs are agents appointed after registration with the Securities and Exchange Board of India (SEBI). Investors who wish to invest in the capital market need to open a Demat account with a DP. It is, in several ways, like opening a savings account with any bank branch.

What are the types of Demat accounts?

Generally, there are three types of Demat accounts.

• Regular account: for traders residing in India.
• Repatriable account: for Non-Resident Indians (NRIs).
• Non-Repatriable account: Another variant of a repatriable account that NRIs use.
  

The traditional way of opening a Demat account

• Select a DP
• Fill out the Demat account opening form and submit it.
• Comply with Know Your Customer (KYC) requirements
• Complete the validation procedure
• Sign copies of the agreement
• Receive your BO ID (Beneficial Owner Identification Number)
• You can access your Demat account with this ID
  

Opening a Demat account online

• You can also choose to open a Demat account with a DP online.
• Visit the DP's website.
• Click on the 'Open Demat Account' option.
• Submit your personal details such as name, email ID, mobile number, and the one-time password (OTP) received on your entered mobile number.

After submitting these details, the DP will contact you to complete all the formalities to open a Demat account. Once you have your user ID and password, you can log into your broker’s online portal and begin investing.

What are the benefits of opening a Demat account?
 

• A Demat Account allows you to transfer securities from one account to another instantly.
• You do not have to pay stamp duty on the transfer of securities.
• There are no risks associated with physical certificates such as wrong delivery, fake securities, etc.
• Less paperwork is required to transfer securities from one account to another.
• Transaction cost is reduced.
• It is easier to change address or bank account details. An update done in the Demat account is communicated to all the respective stakeholders, eliminating the need to correspond with each of them separately.
• Ease in the transmission of securities as the entire process is done by DP, eliminating any correspondence with companies.
• A Demat account is a convenient method of consolidating folios/accounts.
• You can hold different types of securities using your Demat account, such as stocks, debentures, government securities, sovereign gold bonds, mutual fund units, etc.
• Automatic credit of shares, mutual fund units, etc., arising from split/consolidation/merger etc., into the Demat account.
  

With the rising cost of living, saving money is not enough. You must invest in assets that can help you beat inflation and create a wealth corpus. The capital markets can assist in this mission, but you need a Demat account to get started.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.