Everything You Wanted to Know About Demat Accounts, But Didn't Know Whom to Ask

In India, the term demat' denotes a dematerialised account

. A dematerialised account is an account which holds stocks and securities electronically instead of the physical form. Thus, in order to buy or sell stocks, one needs to open a demat account. A demat account is just like a bank account, except that instead of depositing money one deposits shares.

Is it necessary to open a demat account?

Today, no one trades in physical shares any more. As practically all trades have to be settled in the dematerialised form, it is necessary to have a demat account for trading and investing.

How does one open a demat account?

In order to open a demat account in India; one has to approach a depository participant and fill up an account opening form. Along with the account opening form, one must submit the Proof of Identity (POI) and the Proof of Address (POA) as specified by the Securities Exchange Board of India (SEBI).

What are the fees levied on a demat account?

There are four charges applicable to a demat account. These include:

Account opening fee

As the name suggests, this fee is applicable at the time of opening the demat account. However, it should be noted that not all depository participants charge account opening fees.

Annual maintenance fee

This is also known as the folio maintenance charge. It is usually charged in advance.

Custodian fee

The custodian fee is charged on a monthly basis and it depends on the number of securities held in the account.

Transaction fee

This fee is charged for crediting or debiting securities to and from the account. It is charged on a monthly basis.

What are the benefits of a demat account?

The benefits of a demat account are as follows:

A demat account is a safe and secure way to hold your securities

Transfer of securities do not require stamp duty

Risks associated with physical certificates such as theft, destruction, and bad delivery are eliminated

Paperwork involved during transfer of securities is eliminated

Problems associated with the sale of physical shares such as odd lot is eliminated and even a single share can be sold

Shares are automatically credited to the account during bonus, split, merger, etc.

Thus, we can safely say that the first step to entering the stock markets is by signing up for a demat account.

Everything You Wanted to Know About Demat Accounts, But Didn't Know Whom to Ask

By: Jesica Johnson

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