1. What is a Dematerialisation (Demat) Account?
Investing in equity shares in physical form entails a lengthy procedure, lot of paperwork and risk of getting fake shares. In order to keep the entire experience easy and streamlined, a demat account is required. While trading online, demat account is used to hold shares and securities in dematerialised/electronic format. Under dematerialisation, your share certificates are converted from physical form to electronic form so as to increase their accessibility.
You need a Demat Account number to settle trades electronically. Having a Demat Account allows you to buy shares and store them safely. It is similar to a bank account in which you hold deposits with the bank and the record of debit/credit balances are maintained in a bank passbook. In the same way, when you purchase or sell shares, it will be credited or debited to/from your Demat Account respectively. It can be used to hold a variety of investments like equity shares, exchange traded funds, mutual funds, bonds, and government securities. You can open a Demat Account without possessing any shares. and can maintain a zero balance in your account.
2. What are the facilities offered by a Demat Account?
Transfer of shares
A Demat Account is used to transfer share holdings of an investor. It can be done by using a Delivery Instruction Slip (DIS) in order to conduct share trading. You can provide all the relevant details in this slip for smooth execution of a transaction.
The securities held in your Demat Account can give you access to a variety of loans from the bank. You can pledge these securities as a collateral to secure a loan from your bank.
Dematerialization & rematerialization
If you have a Demat Account, then conversion of the securities into different forms becomes a simple task. You can give necessary instructions to your depository participant (DP) for dematerialisation i.e. to get the physical share certificates converted into electronic form. Conversely, you can get the electronic securities converted back to the physical form as per your requirements.
Multiple access options
Owing to electronic operation, a Demat Account can be accessed using numerous media. You can conduct investing, trading, monitoring and other security related operations using facility of the Internet on a computer, smartphone, or other handheld devices.
Having a Demat Account can help you avail benefits associated with owning securities. Whenever a company provides dividends, interest or refunds to its investors, all the Demat account holders get access to these benefits automatically. Additionally, corporate actions related to equity shares like stock split, right shares or bonus issue is updated in the shareholders’ Demat Accounts.
Freezing Demat accounts
Demat account holders have the option to freeze their accounts for a specific duration, as per the requirement. It is done to avoid any unpredicted debit/credit into the Demat Account. To avail the freezing option, the account holder needs to hold a specific quantity of securities in his/her account.
The National Securities Depository Limited (NSDL) keeps extending various facilities for the Demat account holders. Instead of physical submission of the slip, the account holder may send instruction slips electronically to the depository participant. It is done to make the process faster and less cumbersome.
3. What are the documents required for a Demat Account?
You may perceive a demat account just like a bank account which hold securities instead of money. The Demat account opening procedure and the mandatory documents required are similar across organisations. Before submitting any document having an expiry date, ensure that it is valid on the submission date.
Here is the detailed list of documents that you need for opening a Demat Account.
A. Proof of Income
You may submit any one of these as a proof of income:
- A photocopy of the Income Tax Return (ITR) Acknowledgement slip submitted to the Income Tax Department during tax filing.
- Certificate of Net Worth or photocopy of the annual statement of accounts authenticated by a Chartered Accountant.
- Salary Slip of the current month or Form 16.
- A statement of Demat Account holdings with an eligible Depository Participant.
- Latest statement of bank account containing the income history of last 6 months.
- Any documents that prove ownership of assets through self-declaration.
B. Proof of Identity
You may submit any one of these as a proof of identity:
- PAN card having a valid photograph.
- Aadhaar card / Voter ID card / driving license/ Passport.
- Identity card having applicant’s photo which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council, and Credit/Debit cards issued by Banks.
C. Proof of Address
You may submit any one of these as a proof of address:
- Passport/Voters Identity Card/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Flat Maintenance bill/Insurance Copy.
- Utility bills like landline telephone bill, electricity/gas bill which is not more than 3 months old.
- Bank Passbook which is not more than 3 months old.
- Self-declaration of new address given by judges of High Court and Supreme Court.
- Address proof which is issued by bank managers of Scheduled Commercial Banks/Scheduled Co-Operative Bank/Multinational Foreign Banks, Gazetted Officer / Notary public, Member of Legislative Assembly, Member of Parliament.
- Identity card containing address which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council.
- Address proof given in the name of the spouse
4. How to open a Demat Account?
You can open a Demat Account by following these easy steps:
- Firstly choose a Depository Participant (DP) with whom you would like to open a Demat Account.
- Afterwards, fill an account opening form and attach a passport-sized photograph along with photocopies of the required documents stating proof of address and identity. You should have a PAN card unless otherwise exempted. Remember to carry the original documents along for verification.
- The DP will give you a copy of the rules and regulations, the terms of the agreement and necessary charges that you need to pay.
- During an In-Person Verification, a representative of the DP would contact you to verify the details provided in the account opening form.
- After processing of the application, you will get an account number/ client ID from the DP. These details will be required to access Demat Account online.
- When you become a demat account holder, you would be required to pay an annual maintenance fee for maintenance of your account. Additionally, you would be charged a transaction fee for conducting buying/selling transaction via the Demat Account. In case your shares are in physical form, the DP may charge you a separate fee for dematerialisation of the shares.
- You can open a Demat Account without having any shareholdings. Moreover, there’s no mandate to maintain a minimum balance.