5 Things To Know Before Investing With A Demat Account

The advent of demat account has revolutionized the way trading is performed in India. Maintaining an online demat account is as simple as managing your bank account. Similar to managing a bank account where you require internet access to view your balance and transactions, the concept of dematerialisation helps you track your dealings in the share market online.

Dematerialisation has made online share trading an easier and safer alternative for traders. With the help of a demat account, you can store the details securely and back up the data sufficiently with respect to its value and preference. Thus, with an online demat account, the trader is free of any concerns such as theft or fire.

If you’re new to the online trading scenario, here are the five essential things you should know before investing with a demat account.

How To Open A Demat Account

Your demat account holds all your shares and investments in a computerized format. In order to purchase and sell shares in the Indian share market, as an investor, it is essential for you to open a demat account with a Depository Participant (DP). The DP acts as an agent between the trader and the depository. The National Securities Depository Limited (NDSL) and Central Depository Services Limited (CDSL) are two depositories working under the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) respectively.

Documents Required To Start A Demat Account

To start a demat account, you have to present the following certificates to your DP.

• Proof of identity and residence (passport, driving license, voter ID, Aadhar card)
• Copy of PAN card
• Passport size photographs

Once the application form is submitted with the above-mentioned documents, it will take approximately one to two weeks to start a demat account. You have the option to operate multiple demat accounts with various DPs. However, to keep a sound check and control over your investment finances and activities, it’s advised to not do so.

Types of Demat Accounts

There are mainly two types of demat accounts:

• Basic Services Demat Account (BSDA): This type of demat account is suitable for small or day traders who don’t hold more than 5 – 10 lakhs worth of investment securities or certificates. On a general basis, BSDA holders aren’t charged a maintenance fee for possessing securities of up to 50K.
• Regular Demat Account: This type of demat account is standard for all investors and even a small investor can start one. As opposed to the BSDA demat account, the charges for maintaining a regular demat account are extra, but the convenience and services offered are worth the money paid.

Charges of A Demat Account

The charges of a demat account vary according to the DP you select. Maximum DP’s don’t charge a fee at the time of opening an account. However, for annual maintenance charges (AMC), they levy a nominal fee on a per security basis ranging from 200 – 850.

Benefits of A Demat Account

Dematerialisation enables an investor to trade electronically, but it also offers more benefits than that. Let’s have a look at some of those advantages.

• Single Platform: Operating a demat account not only helps in trading shares online but also works as an instrument for trading bonds as well as mutual funds. Thus, a trader has the advantage of viewing all his investments on a single platform.
• Automated Updates: A trader doesn’t have to give details every time they deal with an organisation for investment transactions. They can present their demat account which has all the necessary information.
• Less Risk of Theft: Since there are no physical documents involved, the chances of theft, fake shares, and illegal transfers have been eliminated with an online demat account. It is said to be one of the greatest benefits of an electronic trading platform, where the system automatically credits securities in the right demat account.
• Cost Reduction: Another great advantage of having an online demat account is that a trader doesn’t need stamp duty (tax) for investments. Initially, the stamp duty for each stock was 0.5% which can now be avoided with the help of dematerialisation.
• Easy to Maintain: Physical records are vulnerable to damages such as fire, water, or even getting misplaced. Even one trivial damage has the potential to cost you a lot. But with a demat account, a trader can easily maintain and safeguard their transactions. A trader can also utilise the nomination facility where the account can be transferred to the nominee automatically in case the account holder expires.

You can start a new bank account solely for investment purposes as it will help you monitor your profits effectively. It can be slightly tricky to use an existing bank account or salary account as there are several other transactions in them as well. Once you open up a demat account, you will witness that it is helpful in several ways for your trading strategies.