Demat account or "dematerialized account" is compulsory in India if you want to hold any kind of financial securities in the equity or debt market; these include investments in stocks, mutual funds, derivatives, commodities, and currency markets among others. If you trade on the secondary markets, your Demat Account Number is as important as your primary bank account number or cell phone number.
A Demat Account is usually opened with a brokerage firm such as a bank or trading house for example. These brokerage firms are participants in the depository system. A depository is where all your electronic investment records are stored.
Once you open Demat account with a broker, you will receive a welcome letter from the depository. This letter will contain all information related to your account, including your Demat Account Number. There are two depository firms in India - CSDL and NSDL. Depending on the affiliation of your broker, you will receive a letter from either of these. Some brokers are affiliated with both depository firms. Generally speaking, it doesn’t matter which depository is affiliated with your broker. Once you have a Demat account, you can trade in the secondary markets.
In your welcome letter, your Demat Account Number will be listed as a 16-digit Beneficiary Owner ID (BO ID) in case of CSDL, such as 5687462156784568. If your account is opened with NSDL, your Demat Account Number will be a 14-digit ID followed by the letters ‘IN’, for example, IN45218695956564. When you do any transaction from your trading account, you can see your Demat Account Number listed in the transaction summary.
Your Demat Account Number is compulsory to be quoted in all transactions in the secondary markets in India. The purchase and sale of any securities from your trading account will be automatically reflected in your Demat Account. Demat Account Number basically does away with the need to hold share certificates and other securities in paper format. It reduces the risk associated with physical documents and significantly reduces the time needed to transfer shared from one person to another.
Your 16-digit Demat Account Number includes a Depository Participant ID and your customer number with your broker. This combination provides a unique Demat Account Number to each market participant. In the case of CDSL, the first 8 digits of your Demat Account Number are depository participant ID and the last 8 digits are your customer ID with the depository participant. The same goes for NSDL where ‘IN’, the 6 digits are depository participant ID and the rest of the numbers reflect your customer ID with a depository participant.
A Demat Account Number is as important as a bank account number when it comes to investing in India. You do not need to remember it; your brokerage firm associates your trading account with your Demat account and quotes it on your behalf whenever a financial transaction takes place. However, you should know how and where to find it.
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