The first and foremost step to start trading and investing in the stock market is to open a Demat account. It is a must-have for anyone who wants to purchase securities, like stocks, bonds, or mutual funds, electronically. The process itself is fairly straightforward, but knowing what steps to take, what paperwork you need to provide, and the options that are available to you can make sure that your account is opened seamlessly. This article suggests the steps to be taken to open a Demat account so that you can kick-start your journey into investing easily.
What are Demat accounts, and how do they work?
In India, trading used to take place by transferring securities in the form of physical certificates. However, in 1996, the Securities and Exchange Board of India (SEBI) introduced Demat accounts in the country, and it revolutionised investing by making it a digital process. One of the most important factors introduced by SEBI was a Demat account.
‘Demat’ refers to dematerialisation, a process by which physical securities are converted into electronic format. Therefore, a trader can use a Demat account to hold, transfer, and transact securities without the hassles of dealing with physical securities. As a result, trading has become a safer, quicker and much more efficient method of storing securities and executing trades.
Demat accounts are used for the dematerialisation of shares. It is primarily used for investing in shares and securities in an electronic form that is more accessible with a Demat account. Specifically, these accounts are meant to convert share certificates from physical to electronic format, thereby providing greater accessibility for account holders.
Steps for Opening a Demat Account
In the digital age, opening a Demat account has become quite easy. Here are the key steps:
- Choose a Depository Participant: The first step is to choose a good Depository Participant, such as a bank, financial institution, or broker that is registered with a national depositary (like NSDL or CDSL in India).
- Fill out the Application Form: Visit the DP webpage or branch to fill out the application form. Provide your personal information, such as name, address, date of birth, and contact numbers.
- KYC Documents Submission: Upload basic customer identification documents for KYC compliance. These traditionally include identity proof, such as a passport or Aadhar card, address proof, and a recent passport-sized photograph.
- Attach a Bank Account: Next, you must enter your account number and IFSC code so that your funds can transfer smoothly for trading.
- IPV: Finish the in-person verification process that is required by regulatory authorities online or in person.
- Sign the Agreement: Read and sign the agreement provided by the DP that contains the terms and conditions of the Demat account.
- Account Activation: When your application has been verified and approved, you will be given a unique Demat account number that registers you to begin trading.
Types of Charges Associated With Opening a Demat Account
Investors should be aware that there are multiple charges for opening a Demat account. However, these charges may differ from one Depository Participant (DP) to another or as per the services availed. Here are the major categories of charges:
- Account Opening Fees: The majority of DPs charge a one-time fee to open a Demat account. Some might offer to open an account for free as part of a promotional offer, but be sure to double-check the terms of that.
- Annual Maintenance Charges (AMC): This is a recurring fee charged annually to maintain your Demat account. AMCs differ between DPs and even vary depending on the type of account or holdings.
- Transaction Fees: These fees are charged whenever you purchase or sell securities. They can be charged as a flat amount per transaction or as a percentage of the value of the transaction.
- Custodian Fee: A small fee may be levied to provide safekeeping of securities in the account. These fees are typically related to the amount of securities held.
- Charges for Dematerialisation/Rematerialisation: You may incur further charges if you convert your shares from physical to electronic form (dematerialisation) or vice versa (rematerialisation).
- Other Service Charges: Some services , like modification of account and closure, are subject to additional charges.
Why Do You Need to Open a Demat Account?
A Demat account is essential for modern investors, as it offers numerous advantages in managing investments electronically. Here are the key reasons why you need to open a Demat account:
- Safe Storage of Securities: Protects shares, bonds, mutual funds, and other securities from theft, damage, or loss compared to physical certificates.
- Convenient Transactions: Enables seamless buying, selling, and transferring of securities electronically without the need for paperwork.
- Mandatory for Stock Market Trading: Required by regulatory authorities to trade in shares on stock exchanges in most countries, including India.
- Access to a Wide Range of Investments: Facilitates investing in various instruments, including equities, bonds, government securities, and exchange-traded funds (ETFs).
- Reduced Risk of Forgery: Minimises the chances of forgery, duplicate certificates, and signature mismatches, ensuring secure transactions.
- Simplified Portfolio Management: Offers a consolidated view of all investments, making it easier to track performance and manage your portfolio.
- Corporate Benefits and Updates: Automatically credits dividends, interest, and bonuses while providing timely updates on corporate actions.
- Cost-Effective: Eliminates stamp duty on physical shares and reduces transaction costs associated with traditional methods.
Things to Remember while Opening a Demat Account
Knowing how to open a Demat account online, along with the steps to open a Demat account, is the majority of the learning. However, you should remember a few things while opening a Demat account.
- Link your Demat account to your trading account: It is advised to link the Demat account to your trading account as it is not useful without it. Alternatively, you could also opt for a depository participant like India Infoline, which offers Demat and Trading accounts under one roof.
- Beware of all the Demat account charges: Before submitting your Demat account opening form, read through the charges statement (opening and AMC charges). Being aware of the expenses upfront ensures that you are getting the best deal and no hidden charges.
- Fill in your details correctly: Remember to double-check the details in your Demat account opening form before submitting it to ensure that there aren’t any mistakes or any unfilled fields. Errors may result in the rejection of your application.
- File your nomination: Having a nominee for your Demat account is critical since it makes the transmission of shares much easier in the future.
Conclusion
Learning how to open a Demat account online is the most important in your quest to invest in the stock market and make better profits than other investment instruments. With IIFL, opening a Demat account using the IIFl Demat account app is easy and convenient. By keeping in mind the set of factors mentioned above and details, you, too, can open a Demat account at IIFL in a completely hassle-free manner.
