Home/Blogs/Things to consider before you open a demat account

Things to consider before you open a demat account

According to the rules and regulations laid out by the Securities and Exchange Board of India (SEBI), having an active demat account is a mandatory prerequisite to get started with stock market trading.

A demat account is used to store shares and other securities that you purchase in an electronic format, much akin to a bank account. It enables seamless transfer when you buy or sell securities and prevents incidences of theft, fraud, and loss.

That said, before you go ahead and open a demat account for yourself, it is important to first take certain key factors into consideration. This way, you can ensure that your demat account experience is hassle-free. So, here are 6 key things that you should take into account before opening a demat account.

1. Check whether the depository participant is also a stock broker

Nowadays, almost all stock brokers are also depository participants and vice versa. However, there are still quite a few firms that only offer either depository services or stock broking services.

In such a scenario, you will have to open a trading account with one entity and a demat account with another. Doing so can be extremely cumbersome since you would have to manually send a DIS (Delivery Instruction Slip) to your depository participant each time you sell your shares through your trading account. And if you don’t send the DIS on time, it might lead to a deficiency in delivery and can cause severe losses to you.

That said, if you opt to open both demat and trading accounts with a stock broker who is also a depository participant, both of these accounts will be linked with one another. This will enable a seamless transfer since your stock broker will finally be able to access your demat account and automatically transfer the securities when you place a sell order, eliminating the chances of a bad delivery.

So, this is something that you should take into account when you set out to open a demat account online.

2. Check if the technology platform is robust

The platform provided by the stock broker cum depository participant should be intuitive, user-friendly, and robust. This is something that you should check before you go ahead with the demat account opening process. Many stock broker cum depository participants allow you to access both your demat account and your trading account through a single portal.

This is highly advantageous since it will allow you to keep a track of all the debit and credit transactions that take place on your demat account easily. Being able to access all of your stock market trading information in one place through a single sign-in is what you should be looking for in a service provider.

3. Take a good look at the charges involved with the demat account

You might have seen several stock broker cum depository participants offering to waive off demat account opening charges if you choose them as your provider. However, the demat account opening charges is just one of the many that they levy during the course of your ownership.

Some of the other charges that you’re liable to pay are as follows - Annual Maintenance Charges (AMC), transaction fees, redemption charges, dematerialisation charges, and rematerialisation charges, among others.

So, before you open a demat account, make sure to read the statement of charges thoroughly to apprise yourself of the various fees that you would have to pay. Also, compare the charges of different demat account service providers and choose the one that’s more affordable without compromising on the quality of services.

4. Check the quality of services provided

The quality of services provided by the service provider can either make or break your demat account ownership experience. So, it is advisable to do a proper check of the level of services and the quality of customer support that the provider offers before opening a demat account.

To start off with, try to determine the amount of time the service provider takes to dematerialise shares and other securities, credit your demat account with securities you’ve bought, pledge and release your securities, and address complaints and grievances.

Go ahead with the demat account opening process only if you’re satisfied with the quality of services and customer support the provider offers.

5. Conduct a background check of the depository participant

While you’re checking the quality of services, also do a background check of the depository participant simultaneously. The best way to do that would be by reading through the various reviews of the entity online. Also, while you’re at it, make sure to check if there are any pending complaints or grievances against the depository participant with the Securities and Exchange Board of India and the nature of the complaints.

Too many grievances filed against the participant might indicate deficiency of services and does not bode well. Also, check if there are any serious complaints regarding unauthorised access or transfer of shares filed against the provider.

6. Check if the depository participant offers paperless account opening

And finally, remember to check if the demat account service provider offers a completely online, paperless account opening process. Thanks to the implementation of Aadhaar e-signing by UIDAI, many stock broker cum depository participants have begun to offer this feature.

As the name itself signifies, paperless account opening doesn’t require you to physically visit any branch or submit any physical application or documents. The entire account opening process and KYC can be done online through the internet from the comfort of your own home. This helps you save a lot of time, energy, and effort. That’s not all. With paperless account opening, you can have your very own demat account up and running within 24 hours even.

Conclusion

These are some of the key factors that you should take into consideration before you go ahead with the demat account opening process. Remember to initiate the process only after satisfying yourself of all the above listed factors.

If you wish to enjoy seamless online trading, then get in touch with Motilal Oswal right away. You can open a demat account online within just a few minutes and get started on your wealth creation journey within just a few days.