An Overview of Demat Account, Types, and Opening Instructions | Motilal Oswal

An Overview of Demat Account

You may have gotten used to seeing promotions by brokers and banks that say “Open a demat account today for free!” and have some queries regarding a demat account itself. Everyone has some knowledge about different accounts in finance, such as a savings account, for instance. A savings account allows you to store your funds in a bank in a secure way, giving you access to them when you please. A demat account also offers you a storage facility, but instead of funds, a demat account stores your securities like shares and bonds. 

Know About Demat Accounts

Before you get to know about how to open a demat account, it is important for you to understand what a demat account is, its working and function. If you wish to invest in certain securities like stocks or bonds, opening a demat account is a prerequisite. In the simplest of terms, a demat account is an account that serves the purpose of storing your held shares and other securities in an electronic format. A demat account, or dematerialised account (of shares held in a non-material or dematerialised format), makes share trading easy, especially as technology has facilitated trading and investing online in most cases. If you wish to open a demat account, this can be done with a simple online process too. 

Some More Knowledge

In India, if you wish to indulge in stock market trading, you should know a thing or two about demat accounts. There are two depositories in India, the CDSL (Central Depository Services Limited) and the NSDL (National Securities Depository Limited) which are the major depositories that hold all securities in demat formats and facilitate your trading on the stock exchanges. 

Your demat account services are free of cost, especially if you wish to open a demat account with a bank or a broker. These intermediaries that open demat accounts for investors are known as depository participants (DPs) and are authorised by the two main depositories to open demat accounts for clients. While you can open your demat account for free, the depository participant may levy a fee to maintain it. However, if you are engaged in regular trading and investing, a demat account has to be opened, and this is the case if you are allotted shares through any upcoming IPO as well. 

Types of Demat Accounts

When you open a demat account to trade and invest in the stock market, you must open a trading account too. This is connected to your demat account and gives you the purpose of transacting in the stock market. This translates to the purchase and sale of securities like shares. If you do not open a trading account, a demat account does not facilitate the sale and purchase of securities. In turn, both a demat account and a trading account are linked to your bank account so that the smooth outflow of capital can occur if you want to buy shares, and inflow if you sell any securities. While gaining knowledge about demat accounts, it is vital that you know about the types of demat accounts on offer and how they work. Broadly, there are three categories of demat accounts that can be opened by potential investors and traders. These are explained below:  

  • Regular Demat Accounts - A regular demat account is opened by any investors or traders who reside in India. This is the commonest of all demat accounts for people living within the country and engaging in stock market trading. Furthermore, these are perfect for investors who wish to trade in direct equity. Shares bought are stored in electronic form, especially good for long-term storage, and shares sold may be done so through your demat account holding those shares. The gains from shares sold can be credited directly into your linked bank account. You should note that there is no need to open a demat account if you are investing in futures and options contracts, as these have an expiry date and do not have to be stored for the long run. 
  • BSDA Accounts - A Basic Services Demat Account or a BSDA, resembles a regular demat account. The only point of difference between a regular demat account and a BSDA is that you do not have to pay any maintenance charges after you open a demat account of the BSDA kind. However, your holdings in such an account should only be worth Rs. 50,000 or less. In case the value of your holdings increase to Rs. 200,000 in a BSDA, then a maintenance charge of Rs. 100 is levied yearly. The Securities and Exchange Board of India (SEBI) introduced this account to make the nature of investment in stocks more inclusive. Consequently, smaller investors, or those just starting their stock investment, can be encouraged to invest. 
  • Repatriable Demat Accounts - These accounts can be opened by NRIs or non-resident Indians who wish to invest and trade in securities in India. Investors are permitted to transfer funds abroad through such accounts. However, the catch is that non-resident Indians must have an NRE/NRI bank account attached to such a demat account. 
  • Non-repatriable Demat Accounts - In case you are an NRI and do not wish to transfer your capital abroad, you can open a non-repatriable demat account. With such an account, you must open a linked NRE or NRI bank account, but your funds collected through the transactions of your securities will remain in India and can be used in the country. 

Open a Demat Account, Open a Trading Account

You can open a demat account very easily online or offline in India. You need to have certain eligibility documents in order first, including your proof of identity, address and income (PAN and Aadhaar Cards, and IT returns, etc.). Once you have these in order, you can follow these simple steps: 

  1. Choose the depository participant of your choice (a bank or broker). 
  2. You can fill out an online form or physically attend a bank or brokerage to do so.
  3. Submit your documentation, either uploading it online or handing it over to your DP in person. 
  4. There will be a personal verification and then your application will be processed. 
  5. Finally, you will receive a demat account number or a client ID from your depository participant. 

Get Cracking and Open a Demat Account!

It's worth your while to open a demat account today if you wish to invest in the stock markets. One of the most popular avenues for investment, the stock market can give you substantial returns in terms of long-term gains. You can also consider starting out your investment in equity with any upcoming IPO of a reputed and strong company. This way, you will diversify your portfolio and get inroads into the world of equity. 

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

 

 

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