A demat account is a digital account where the shares you purchased are stored in an electronic form. If you are planning to open a demat account soon, make sure that you do know these five details.
A demat or a dematerialised account is just like a bank account. But rather than holding money, this account is used for holding your securities, like shares, bonds, debentures, and mutual funds. It is a digital alternative to holding such securities in paper or physical format. When you trade shares online, you can use this demat account for holding the shares you buy.
While opening a demat account is now very easy, there are some important things that you should know about them.
- What are Depositories?
Depositories are organisations which hold securities in an electronic format on your behalf. In India, there are two such depositories- CDSL (Central Depository Services Limited) and NDSL (National Depository Services Limited). While CDSL works with BSE, NDSL works with NSE. The demat account you open will be connected to these depositories.
- How to Open a Demat Account?
To open a demat account, you’ll have to approach a DP (Depository Participant). The DP is your link between the depository and your demat account. There are full-fledged stockbrokers, and then there are also banks that are registered depository participants. You can approach any DP to open a demat account.
- What are the Documents needed for opening a Demat Account?
Just like opening a bank account, you’ll also need to submit a number of documents to open a demat account. These documents generally include your ID proof, address proof, PAN card, income proof, and photographs. Once you submit these documents along with a duly filled KYC form, your demat account will open in a few days.
- What are the Charges for Opening a Demat Account?
Once you have selected a DP, you’ll receive the rules and regulations, agreement terms, and charges of the DP. Most of the DPs now don’t charge a fee to open a demat account. The others who do, have a fixed fee or a refundable fee. Apart from a fee to open an account, there will also be brokerage, annual fee, transaction fee, etc. for trading through a demat account.
- What is the Minimum Share Balance for a Demat Account?
Once you know what is a demat account and all the other important details associated with it, you should also know the minimum balance of shares that you need to maintain in your account. While a demat account has a lot of things common with a bank account, the minimum balance is not one of them. You do not need any shares to open a demat account nor do you need to maintain a minimum balance of shares in your account.
If you want to trade shares, it is compulsory for you to have a demat account. Before opening the account, ensure that you clearly understand the charges of different DPs and the features they offer, to pick the best.