It is mandatory to have a Demat Account under The Depositories Act of 1996 if you want to trade in the share market. Whenever you make a purchase of a share or sell it, that particular share is stored in this folder in an electronic form. Unlike the initial days of the stock market, there is no physical exchange of stocks and shares nor is there any physical transaction of the assets. In short, the shares have been dematerialized, hence the name Demat.
With the changing times, everything went online and so did Share Market. The presence of the stock market online has made many things easier. You can also create this portfolio online. Nationalized and private banks, financial institutions, brokerage firms, Share Market Apps, all provide this facility since the digitalization of the share market and especially in these unprecedented pandemic times. You can open a Demat account online in some very easy and simple steps.
A Demat folder can now also be opened for free, online. Many brokers, banks, apps provide this facility on their websites or apps. And by free it doesn’t mean that only the account opening charges are waived off, but many other charges too either are reduced considerably to the extent of being negligible or completely waived off. The DP provides the services of an account to the investor and charges the investor an Annual Maintenance Charge, also known as Folio Maintainance Charges. This charge has to be paid in advance and generally falls between Rs 300 to 900 a year. This is paid to keep the e-wallet active. Some brokers provide the facility of a free portfolio with absolutely no AMC charges, to a lump sum amount for a lifetime. This facility makes opening a Demat account with that particular broker or institution even more attractive. A Demat wallet is very important as without it we won’t be able to store our shares or stocks. Also, it is mandatory now to have this account as we already read in the post. It ensures transparency of the transactions and also safe banking. Let’s understand more about it by taking a look at the different uses or rather advantages of Demat Account.
A trading account is important to be able to buy or sell shares. You can’t take out money from your savings account directly and buy a share. You also can't use a Demat portfolio to buy the shares. Money from your bank gets transferred to your trading account, and on the purchase or selling of a share, the transaction is recorded in a Demat account. Hence, all three are linked. Keeping all the points in mind, you can go ahead and start with the basic step of opening these two accounts online. We all have a Bank account and are aware of the benefits too. It is the safest place to keep your money.
But most of us are not aware of what benefits a Demat account has. It is a kind of folder or a portfolio that helps us in, storing the shares and stocks in an electronic form. It has helped dematerialize the paper form of the share certificates, hence the name. These days many financial institutions provide the service of opening a free Demat and trading account. The process of opening such a portfolio online is as simple as it sounds. This account or portfolio is mandatory as well as beneficial because it provides a seamless experience. Even though SEBI has allowed physical trading of stocks and shares for up to a minimum of 500 shares, this process is very inconvenient and involves risks too. Let us understand how we can open a Free Demat account. • The first step incorporates selecting the bank, financial institution, or a stockbroker to be your Depository Participant. DP has the stock of all shares, stocks, IPO’s mutual funds, etc. • Fill the form of opening the account on their website or the registered App. • Enter the OTP that you will receive on your mobile number registered with the bank, to go to the next step. • Next you have to fill in the Date of Birth, email id, PAN details, and Bank details. • Details of your Demat account are sent to you on your registered Email ID. • E-Sign on the dotted line, to complete the formalities. Your phone number should be linked to the Adhaar card to enable this facility. • Start operating your account by creating a password. A Trading account too can be opened in the very same way using the online facility. It is a kind of wallet that allows you to buy or sell shares by transferring money from your bank. If you do not have a Demat folder, you can do Intraday trading only. Now let us see what, are some of the advantages of a Demat account:
Opening a free Demat folder enables you to get rid of charges like account opening charges, security charges. Some of the service providers also allow you to maintain a portfolio with zero or very minimal Annual Maintenance Charges. When it comes to opening the best Demat account in India, it is important to keep these things in mind. • Check whether you can avail the Demat as well as Trading facility with the same DP or not. • Always search the history and reviews of your DP. Do not go with DP’s with negative reviews or malpractices. • Check if they will allow you access to both of these e-wallets via a single portal. It can be quite a hassle if this is not the case. • Costs of different service providers must be compared before opening an account. After cross-checking these things you can go ahead. The best Demat account providers in India are those which fulfill all these criteria. If you want your money to grow, you need to start investing in Mutual Funds, Bonds, IPO’s, Stocks, Shares. For holding any of these assets, you need to have a Demat account first of all. This is just the simplification and the digitalisation of the earlier process when the investors had to do physical trading of the stocks and also had shares in paper form. In short, it means de-materialization of the trading process. Now the shares are stored in electronic form in a Demat Account.
The Demat account opening procedure is pretty simple. It begins with selecting a DP which means Depository Participant. This DP is the bank or the broker or the financial institution that you are choosing through which you will be opening your Demat portfolio. Next comes filling up the account opening form and filling in KYC details, as would happen in opening any simple bank account. So you need these documents for the same: • Address proof like Ration card, Electricity bill, or Voter ID Card. • Identification Proof-like Adhar Card or Passport. • Not to forget the PAN card. • Bank statement. • Cancelled cheque. • Recent Passport size photograph Once you are done submitting this, the bank or the broker provides you with a copy of all the rules and regulations related to the account. It is mandatory as well as advisable to go through these rules and regulations thoroughly before you sign on to it. An In-Person Verification IPV is done by the bank to ensure that no one else is doing the process in your place. This is a crucial step and can't be missed. These days this is done through a Webcam from the facility of your home. The account opening procedure comes to an end as the DP gives you your unique client ID. You start operating your Demat folder by creating your password. Before Online trading facilities began in India, there used to be Offline trading. In this system, the investor would place the order with the broker who would, in turn, buy or sell the shares. With the advent of computers and the internet, offline trading has become a thing of the past. Nowadays only Online trading is done. In the same way, you can open a Demat Account online. If you have created your e-wallet, just to hold shares for long periods and are not a frequent trader, then before creating this portfolio, you must understand that there are many charges applicable like the Account Opening Charge, Safety, or the custodian charge, Annual Maintenance charge, transaction charges. With so many charges to pay, you might lose interest and would want to close the account. To help resolve this issue and the burden of various charges, some of the brokerage firms, and banks provide Free Demat Account Opening. The procedure of creating a free portfolio online is hassle-free. In an offline account opening procedure you have to take out the printout of the forms, fill it up and go and submit it to the bank or the brokerage firm that you have chosen. Whereas, in an online format, you create the account from the convenience of your home at the touch of a finger. There are some really simple and easy steps to create your own E-wallet: • Choose the DP, that is the Depository Participant with which you want to open the account. • Open the account opening form on their app or website. • Fill in your name, phone number, PAN number • Add your bank details as well as personal details. • Upload all the KYC details asked for. • IVP is done via access to a webcam. • For the signature part your mobile number needs to be linked to your Adhaar card. • You get the confirmation on your mobile through the unique client ID. • Create a password and start operating your folder. There are banks and some reputed brokerage firms which provide you with the free facility. Such firms provide zero or no brokerage, the first year’s annual maintenance fee is waived off completely. There are no hidden charges and it is cost-efficient as well. If you want to open a trading account, the procedure is the same for it as well. This specific account is required when you want to buy or sell stocks. It is linked to your bank account. Whether you want to buy or sell, you will first transfer money from your bank to your trading account and then buy or sell the share through it. Are you really interested in the stock market?
Are you a beginner and still do not know what a Demat Account is? Then read through this entire post to know all about creating this portfolio. Earlier, when we didn’t have the facility of Online transaction mode, trading of shares was done physically. Buyers and sellers would go to the stock exchange to do physical trading of shares. Buyers would take their cash and sellers would take their physical certificates of shares. There used to be bidding on the stocks and shares of companies, and when a deal was negotiated the physical exchange of share certificates and cash would take place. There were certain disadvantages to this process: • Both parties had to be physically present for the deal. • This entire procedure took a lot of time. The material procedure that was required way back then was dematerialized. No physical certificates or forms are required in the online process. De-mat simply means the entire process was dematerialized and made Online. This is similar to our account in the bank. When we deposit money in the bank, we can view it in electronic form through net banking. You can’t deposit money in a bank if you do not have an account in that bank. So we purchase the shares, stocks and store them in electronic form in this Demat folder. Here it is also very important to understand the difference between a Demat and a Trading account. While the former is meant for storing all your shares in one place, the latter is one through which you trade in stocks. Both of them are important since one is incomplete without the other. You make money transactions with the latter while storing the purchases in the Demat folder. Though, to hold the positions for even a single day, you do need a Demat portfolio. In case you do not have this portfolio, you will have to do Intraday Trading, which means, you buy the share in the morning and you have to clear or square off the position, in other words, sell it the same working day. You cannot hold the shares even for a single night if you do not have a Demat account. How to create a Demat Account: The very first step is that you need to decide with which authorized bank, financial institution, or broker you want to carry on future transactions. This bank or broker is your Depository Participant or DP. How do I understand which DP is good for me? Well, you have to look into the brokerage charges, annual charges, and the leverage provided by the DP. An account opening form and a KYC form are duly filled. Carry the original and photocopies as well, of these documents for KYC details. • Pan Card • Adhar Card, Driving license, or any other identity proof • Voter ID, ration card, or passport as address proof • Bank Statement of last 6 months. • One canceled cheque. • One recent Passport size photograph of yours. An In-Person Verification (IVP), process follows after this to verify the documents. This is a very important step and rules out chances of fraud and deception. online facility allows IVP through access to a Webcam. Once this is done, you are provided with a copy of the rules and regulations by the DP. You must go through this thoroughly before signing the documents. In case you are not able to understand anything in the documents or you feel is ambiguous, it is advisable to take professional help. Finally, your DP provides you with a unique client ID. Create a password and log in to your portfolio. You are also given a Delivery instruction slip that has instructions for various depositary services like purchase, transfer, etc. There is no compulsion for a minimum balance of shares to be held in your portfolio. You can start with one and go on to any limit that you want. If you want to create more such portfolios with a single PAN, you can do so. But you need to change your Depository Participant or DP for that. As you can see the process of creating this type of a folder is fairly simple. To make it further accessible many DP’s provide an Online opening facility too. Talking about the statistics, the number of Demat accounts in India is approximately 6.9 crores. That shows how much people are getting inclined towards investing in stock markets day by day. |
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December 2021
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