Safeguarding physical securities (such as share certificates) is cumbersome. Physical security certificates are prone to damage or theft. In addition, trading using physical securities involves a lot of paperwork and therefore, the process is time-consuming. You may also find it tough to organize and track your physical securities. A Demat (Dematerialization) account helps you solve these problems easily.
A Demat account holds your securities in dematerialized form. In other words, it is an electronic or digital repository for your physical securities. You can hold stocks, mutual funds, bonds, ETFs, etc. in electronic format. Moreover, SEBI has made it mandatory to open a Demat account for online trading. You would require a Demat account to participate in IPOs too.
Formalities for opening a Demat account
Opening a Demat account is a reasonably easy process. You can open a Demat account online too. There are many stockbrokers and search engines that can help you if you do not know how to open a Demat account online. In the consecutive paragraphs, we will provide you detailed information on how to open a Demat account online.
1. Choose your Depository Participant (DP)
A DP is a registered member of NSDL or CDSL. It is authorized to provide depository services to investors. Most brokers in India hold depository participant’s licenses. They act as intermediaries between you and the depositories.
You are free to choose any DP for Demat account services. An ideal DP would provide you with prompt services and active grievance redressal. Some DPs also provide stockbroking services through subscription packs that lower your trading costs significantly.
In order to transact in secondary markets, you require a trading account too. Thus, you may choose a stockbroker which offers you trading services. Some stockbrokers which are also Depository Participants allow you to open both Demat and trading accounts online for free. They may even waive the Annual Maintenance Charges on the Demat account for a specific period. Also, read about Crowdfunding.
2. Fill the form and upload supporting documents
Once you have selected your DP, you need to complete an online Demat account application form on your DP’s website and upload the requisite documents. The documents required for a Demat account are:-
- Identity Proof and address proof (such as, Passport, Driving License, Aadhar Card, Voter ID Card, etc.)
- PAN Card
- Bank account details
The documents required for a Demat account must be scanned and uploaded on the website while submitting the online application form. Your bank account will be linked to your Demat and trading accounts for adding fund from your bank account to the trading account.
3. Affix an e-signature on the form and DP agreement
As per SEBI guidelines, an agreement must be signed between you and your DP. A DP agreement specifies your rights and obligations. You need to understand the agreement well.
You can e-sign your form and DP agreement through your Aadhar number. An OTP will be sent to your registered mobile number for validation.
4. Fill the nomination form
In the event of your death, the ownership of your Demat and trading accounts along with the securities therein will be transferred to your nominee. You may appoint any person as a beneficiary or nominee.
5. Verification of your submissions by your DP
Once all the necessary forms and supporting KYC documents are submitted, your DP will verify them. Your DP may also request an in-person verification. They may ask you to provide a video wherein you have to read a given script loudly. You may record it in the recording window or submit pre-recorded video.
Once the verification process is complete, your DP will provide you a code known as BO – ID (Beneficiary Ownership Identification Number) and your account number. You will also receive the login credentials for your account.
These are the formalities to be completed for opening a Demat account.
Apart from an easy application process, a Demat account offers a wide range of benefits like easy transfer of securities, loans against securities, speedy trades, and zero risks of loss of securities. You can compare various options available which will help you lower your costs and provide you a full suite of services.