A dematerialized or demat account is an account which holds the shares you purchase in an electronic or dematerialized form. Just like a bank account holds your money, a demat account holds your financial certificates of instruments like bonds, shares, government securities, mutual funds, and exchange-traded funds.
How to open a demat account?
The process of opening demat account online is simple. Demat account services are provided by depositories. In India, there are two depositories, National Securities Depositories Limited (NSDL) and Central Securities Depositories Limited (CSDL). These depositories provide the services through intermediaries, a depository participant or a broker.
Following are the steps for opening of demat account:
- Choose banks who are depository participants.
- The opening of a demat account requires you to fill an account opening form and submit a set of documents for verification.
- Sign a standardized agreement with the depository. The agreement has details regarding the rights and duties of the investor, charges you will incur for the demat account, etc.
- After the documents are verified, the agreement is signed, and the in-person verification is done, the DP will open your account and give you the account number and other important details.
- There are banks who provide you the option of a 3 in 1 demat account. Your savings account, trading account, and the demat account are all linked to one account.
- A demat account can be opened with zero shares.
- It is not mandatory to have a minimum balance in a demat account.
Online demat account opening requires you to:
- Sign up for a online demat account on the bank’s website.
- Fill in the PAN and AADHAR and other required details.
- Upload personal identity documents
- Do an in-person verification process via a video session.
- Once all of the above is done, you will receive a client code which will help you access your demat account online.
Advantages of Opening an Online Demat Account
There mere existence of a demat account is to make your life easier. There are many advantages of an online demat account. They are as follows:
A demat account is a safe way to hold all your securities. An online demat account saves you from risks such as loss of physical certificates, forgery, bad delivery, damage to certificates, thefts, delays, etc.
A demat account ensures that you get an immediate transfer of securities, automatic credit of shares which can be because of bonus, split, consolidation, mergers, etc.
Absolutely No Paperwork
All the certificates received through buy or selling of shares are saved in the electronic form. This makes a demat account more handy than physically handing over certificates to buyers or sellers.
No Additional or Hidden Cost
Handling expenses, stamp duty, etc., are additional costs that you may have to incur when dealing in securities physically. All of this is eliminated when you open a demat account. It doesn’t require any stamp duty for the transfer of securities. The maintenance fee and brokerage charges are known beforehand. Hence there are no hidden charges.
Concepts and Processes
Transfer, Closure, cum Waiver (TCW)
If you wish to transfer your holding from one demat account to another, then you can do so without any additional charges. The Beneficiary accounts with the Depository from where the holding is transferred to the transferee depository are then identical. If you want to transfer a joint demat account, then you will have to open a new account with the same name.
The process to open a demat online as follows:
- Individuals need to submit the form in person to the institution.
- Signatures are required of all the holders in the presence of an official Depository Participant.
- A stamped and signed copy of a crystal report or client master report has to be submitted where the securities are going to be transferred.
- Cancel and return the unused instruction sheets.
- You need to submit and verify your identity proofs. It should be stamped ‘Original, seen and verified’ by a bank official.
- The names of the demat account holders should be the same.
This is the process of converting your securities’ physical certification into an electronic format.
Once the registrar or the company receives the certificates, they process the credit. It usually takes around 30 days but may differ based on the Registrar or company.
Transmission cum Demat Account
If the investments are held jointly, and if one of the holders is deceased, then the surviving holder must submit all the required certificates of the deceased holder. The certificates include a death certificate, Transmission cum Demat form submitted to the DP.
Transposition cum Demat Account
When the names on the demat accounts and the physical certificates are different a Transposition cum Demat form has to be submitted to convert the certificates into their electronic form.
Instruction Slip Processing
Just as you have Cheque leaves, you have instruction slips in demat account. These slips have to be signed by each holder. These instruction slips are used while on market and off-market transactions.
When you convert your electronic certificates, back into physicals ones, the process is called Rematerialization. For this, you need to submit a Remat Request Form, which has to be signed by all the holders. It should be verified by the Depository participant and then submitted to the company or registrar.
Freezing and De-freezing of Demat Account
You can freeze and de-freeze your demat account as per your wish by submitting the relevant forms for the requests.
Conversion of Mutual Funds to Demat
You can convert your Mutual Funds to a Demat form in the same way you dematerialize your securities. This helps you manage your securities and mutual fund investment together in a single demat account. This rules out the paperwork involving mutual funds.
Redemption of Mutual Funds
Redemption of Mutual Funds is when you redeem your mutual funds for their monetary value.
Closure of Demat Account
If you want to close your account, then you have to submit a form for the process to start. This form has to be signed by all the holders, and the holdings have to be transferred before the closure.