In the past decade or so, stock market has shifted towards the paperless trading. For the investors, who were accustomed to burdened with ream of stock certificates, DEMAT account has now become a need. Not having DEMAT or depository account now has become the major entry barrier to invest in equities. It’s no wonder that a lot more entities (spot market and commodities futures) are moving to dematerialized form of trading for the ease it offers.
A ‘Dematerialized’ or DEMAT account holds shares in the electronic form, hence saving you the trouble of holding your shares in the paper form.
A depository is quite similar to any bank. It keeps the shares, which are owned by investors, in the electronic form. The investors have to open up an account with depository, through Depository Participant (DP). The DP is the intermediary between the investor and the depository. There are two main depositories In India, viz., Central Depository Services and National Securities Depository. A lot of banks (ICICI Bank, SBI, HDFC Bank, and so on), the brokers (Motilal Oswal, IndiaBulls and India Infoline) and institutions function like DPs.
Facilities Provided by DPs
Shares purchased as well as sold by you instantly are reflected in the DEMAT account. Any share you’re holding in the form of paper can be dematerialized also and maintained by the way of electronic credits in your own DEMAT account. In recent times, the stock exchanges have also facilitated sale and purchase of mutual fund scheme on the exchange.
DP, at a regular interval, offers you with the account statement showing balance of shares present in your own DEMAT account and transaction during a period of time. DPs also offer lots of services like electronic settlement of trade in stock exchanges, nomination facility for the DEMAT accounts, pledging/hypothecation of the dematerialized securities against a bank loan, etc.
How Can You Open a DEMAT Account?
You can open a DEMAT account for you with any bank of your choice or with financial institutions and brokers. Usually, banks offer striking rates for DEMAT account if you have your own savings account in their bank. However, if you want to opt for online stocks trading, you will find it more suitable to open your DP account and a trading account with same financial institution or broker.
DPs charge transaction charges for securities debit, an annual maintenance fees, fees for securities pledge and many other charges like charges for dematerialization. The fees and charges charged for DPs services vary across the industry.
Documents Required to Open a DEMAT Account
Documentation needed to open your DEMAT account depends on to your relationships with the institution or broker. If you wish to open up your DEMAT account with any bank, a current, and, savings or other accounts for which holder has been given a cheque book, then such a holder has the edge over non-account holders. Actually, banks offer added incentives to clients who open their DEMAT accounts with them. Together with application form, the photographs (with co-applicant) and date of birth/residence/identity proof are needed to be submitted. DPs also demand a DP-clients agreement to be done on non-judicial stamp papers. Following is the list of documents needed:
- A cancelled check, if possible MICR
- Proof of Your Address
- Proof of Identification
- PAN card Proof (mandatory)
- Latest photograph (one or more)
In depository system, transfer and ownership of securities take place by the means of electronic entries. This offers numerous benefits. Dealing with physical securities is also open to risks such as theft of stocks, loss of certificates and mutilation of certificates during movement to and from registrars. This problem doesn’t arise in depository environment. There isn’t any stamp duty for the shares transfer in electronic form, contrasting the physical segments. In depository environment, after the securities get credited to your DEMAT account, you be the legal owners of the security. There is no more need to send that to company’s registrar.
Also, depository offers for direct credits of non-cash entitlements, like bonus and rights to your account, thus ensuring faster payment and also resulting in reduction in brokerage cost. Closing an account: If you’re one of the ones who doesn’t use the DEMAT account, closing its necessary. For one, yearly maintenance costs are there. There also is a threat that the dormant account could be used for fake purposes. For the end, you have to submit your application with DP. Return all the unused delivery instruction slip and pays off all dues. Keep in mind, DEMAT account only can be closed if there is no share in this.
By having your DEMAT account, you’ll always a chance to invest in different asset classes. They include commodity futures and gold ETFs as well. Lots of investors are incapable to participate in market because they just don’t have their account. It’s time.