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Factors to consider when opening a demat account

12 Apr 2024

A demat account is a must if you want to trade in equities. A demat account is the equity equivalent of a bank account. Just as a bank account holds your cash, the demat account holds your shares in custody. What are the factors to consider before opening your demat? Are there any questions to be asked before opening a demat account? What things to take care while opening demat account? Let us focus on some key things to know about demat account.

1.  Ensure that your demat and trading are with the same broker

Normally, brokers will open your trading-cum-demat account in one go, so this should not be a real issue. What if your broker does not have a DP license? Then you must ensure that once you sell shares with your broker, you need to submit the debit instruction slip (DIS) to your broker on time. If you don’t submit the DIS on time then it can result in bad delivery and lead to losses. When your broker and DP are the same, this entire process becomes simpler and seamless. In fact, you can opt for online demat and trading and give your broker a power of attorney to debit the demat account in the event of sale and credit the demat account in the event of purchase. By having the trading and demat account at the same place, you save yourself a lot of hassles.

2.  How robust is the demat technology platform?

Nowadays, most brokers offer you access to your trading account and demat account through a single platform. Your funding of the bank account, credit to demat accounts, debits to the demat accounts and credits to your bank account all happen seamlessly. Ensure that the DP has a robust technology platform that ensure that your entire demat process happens in a smooth way. Typically, when you sell shares, the demat account gets debited the next day and if you buy shares the demat account credited on T+2 day.

3.  Calculate the demat charges involved

Quite often you must have seen DPs advertising about free account opening. Remember, that is only one of the costs of maintaining your DP account. Then, there is the annual maintenance charge (AMC) that is billed to you each year. This is normally based on the value of shares in custody. Additionally, each time you sell shares and the shares get debited to your demat account, the DP has to pay a charge to the NSDL or CDSL and that also gets debited to your account. Apart from that, DPs also charge if you ask for physical statement, duplicate statement or statement of holdings / transactions for proof purposes. If you DIS gets rejected due to technical reasons then the DP again charges you a penal charge. When you calculate the total cost of your demat account, you need to look at the sum total of all these charges to get a holistic picture.

4. Seamless banking, broking and custody

All the three key activities of banking, broking and custody can only be fully seamless if your broker is a bank too. But that is not too important. If your broking and custody is seamless and if you load funds via NEFT, RTGS, UPI or an authorized payment gateway, then you are good to go. Remember, many brokers charge you a nominal sum to use the payment gateway, so ideally prefer to use the NEFT / RTGS / UPI method for transferring funds as that is normally free of charge. The more seamless these 3 activities are, the less you have to worry about administrative issues.

5. High quality support services

A DP cannot be judged only by the routine transactions. It must also be judged based on how they provide ancillary services. How long does it take it get your physical shares dematerialized? Do the corporate actions get credited to your demat account automatically? How efficiently does the DP deal with issues like pledge, lien, and customer complaints etc? All these add up to giving you a good service experience.

6. Complaints pending against the DP

This is more of hygiene issue and it will tell you how passionate the DP is about its service standards. Be wary of having a demat account with a DP that has a lot of service level complaints pending with SEBI. That is not a very good sign. Also, ensure that there are no regulatory investigations going on against the DP, as we have seen in the past regarding DPs like Karvy and Indiabulls. Also scan the social media and discussion forums for any negative feedback about their DP services. While you do not need to take all such negative feedback at face value, remember that there is never smoke without fire.

Some of these basic checks and balances will surely ensure that you don’t end up with the wrong DP account at the wrong place!


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