The Demat account is also known as the dematerialized account. It is used to hold shares and securities electronically. Demat account is just like a bank account, the only difference between both of them is banks hold monetary transactions whereas the Demat account holds shares. In India, it is issued by two depositaries which are NSDL (National securities depositary limited) and CDSL (Central depositary services limited). It allows safe easy and convenient trade for investors. It also holds investments like bonds, mutual funds, government securities, insurance, ETF’s, etc.
Types of Demat account
- Repatriable Demat account- This type of account is for the NRI’s (Non-Resident India). It enables us to transfer money abroad. However, to transfer money overseas Demat account should be linked to NRE (Non- Resident rupee) bank account.
- Regular Demat account- This account is for the investors who live in India. This service is provided by two bodies NSDL and CDSL.
- Non-Repatriable Demat Account- This account is also for the NRI’s but the transfer of funds is not possible in this type of account. Additionally, it has to be linked with NRO (Non-Resident Ordinary) account.
Process of opening a Demat Account
- Selecting a depositary Participant- The first step in opening a Demat account is to select a depository participant. In India, many banks stockbrokers, and electronic investment platforms offer these services. It is advisable to compare the benefits and services offered by different DP’s before finalizing the most suitable depository participant for you.
- Submit Demat account application form- Once you have selected the DP, the next step is to fill an application form for opening a new Demat account.
- Fulfilling KYC documents- After filling the application form you will be asked for your KYC documents. These can be identity proof, address proof, PAN card, personal and bank details, etc. All these documents must be submitted to open a Demat account.
- Verification Process– After submitting all the documents and application forms you will be asked to go through the rules and regulations and a process called IPV (In-person verification). This exercise is done to check the authenticity of your documents. You will also have to pay any necessary fees that will be required by opening your account.
- Final approval and BOID Number- Once all documents you provided are verified your form will go for final approval and within few minutes you will receive your Beneficial Owner Identification Number (BOID) with the help of which you can access your Demat account.
Advantages of Opening a Demat Account
- Safety and Security- Opening a Demat account helps in eliminating all the risks associated with fake share certificates, physical damage, or misplacement.
- Cost-effective- All the costs like stamp duty, handling charges, and other expenses are eliminated with the Demat account.
- Reduces time– In the Demat account, all the records and transactions can be handled electronically which helps in reducing time.
- No or very less Paperwork– As all the transactions are held electronically in the Demat account so very little or no paperwork is required.
- No TDS on payments made by Demat account- No TDS will be deducted when payments are made by the Demat account.
Disadvantages of Demat Account
- Maintenance cost associated with the Demat account.
- Stockbrokers regular supervision
- Difficult for people who have less or no knowledge of computers because it is electronically operated
- No in hand physical securities.
- Opening a Demat account requires a lot of personal details and documents.
- Fees of brokerages are sometimes very high.
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