Busted: 4 myths about Demat account
A demat account is a digital folder used to hold your shares and securities in an electronic format. While millions of people in India use these accounts to trade on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), there are still many misunderstandings about how they work. Many new investors believe that demat accounts are only for wealthy people or that they are very expensive to maintain. However, the reality is that demat accounts are designed to make investing safe and accessible for everyone.
Understanding the Role of a Demat Account
Before we look at the myths, it is important to know what a demat account actually does. In the past, if you bought shares of a company, you received a physical paper certificate. This paper was proof that you owned a part of the company. Today, those papers are gone. A demat account, which is short for dematerialized account, stores your shares as digital bits.
In India, these accounts are managed by two main central organizations: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). These organizations ensure that your digital shares are safe and cannot be stolen or lost like paper certificates. When you open an account through a broker, they act as a bridge between you and these central depositories.
Myth 1: You Need a Large Amount of Money to Open an Account
One of the most common myths is that demat accounts are only for the rich. Many people believe they need thousands of rupees just to get started.
The Truth:
There is no minimum balance requirement for a demat account. You can open an account with zero shares and zero balance. In fact, many brokers in India offer zero cost account opening to encourage more people to start their investment journey.
You can buy just one single share of a company if you wish. The stock market is open to everyone, whether you want to invest one hundred rupees or one lakh rupees. The demat system was created to simplify investing for every citizen, regardless of their income level.
Myth 2: Maintaining a Demat Account is Very Expensive
Some people avoid opening an account because they fear hidden charges and high yearly fees. They think the costs will eat up all their profits.
The Truth:
While there are some costs, they are usually very low and transparent. Here is a breakdown of the typical charges you might see:
- Annual Maintenance Charges (AMC): This is a yearly fee paid to keep your account active. For many basic accounts, this fee is only a few hundred rupees per year.
- Transaction Charges: You only pay a small fee when you sell shares. There is usually no fee when you buy shares and they enter your account.
- BSDA Benefits: The Securities and Exchange Board of India (SEBI) has introduced a special type of account called a Basic Services Demat Account (BSDA). If the value of your holdings is below fifty thousand rupees, there is often no annual maintenance charge at all.
| Type of Charge | Frequency | Typical Amount |
| Account Opening Fee | Once | Often Zero or Rs. 200 |
| Annual Maintenance (AMC) | Every Year | Rs. 300 to Rs. 800 |
| DP Charges | Per Sale | Rs. 13 to Rs. 20 |
| Physical Statement Fee | On Request | Rs. 50 plus courier |
Myth 3: You Can Only Hold Equity Shares in a Demat Account
Many investors think that a demat account is only for buying and selling company stocks. They believe they need different accounts for other types of investments.
The Truth:
A demat account is a multipurpose storage box. While it is famous for holding equity shares, you can store many other financial instruments in it. This makes it a one stop shop for your entire financial portfolio.
You can hold the following in your demat account:
- Mutual Funds: Instead of keeping physical statements, you can hold your mutual fund units digitally.
- Exchange Traded Funds (ETFs): ETFs are funds that trade like stocks on the NSE and BSE.
- Government Bonds: You can invest in safe government securities and keep them in your demat account.
- Corporate Bonds and Debentures: Fixed income instruments issued by private companies.
- Gold Bonds: Sovereign Gold Bonds (SGBs) can be stored here, making it easy to track your gold investment without owning physical gold.
Myth 4: Demat Accounts are Unsafe and Prone to Hacking
In the digital age, many people worry about cybercrime. They feel that physical paper certificates were safer because they could be kept in a physical locker at home.
The Truth:
Digital shares are actually much safer than paper certificates. Physical papers could be lost in a fire, eaten by insects, or forged by criminals. Digital shares are protected by multiple layers of security.
- SEBI Oversight: The entire system is strictly watched by the Securities and Exchange Board of India.
- Secure Depositories: NSDL and CDSL use high level encryption and secure servers to protect your data.
- Two Factor Authentication: To log in to your account, you usually need a password plus an OTP (One Time Password) sent to your registered mobile number.
- TPIN Verification: Even if someone gets into your account, they cannot sell your shares without a special TPIN and a final OTP.
- Transaction Alerts: Every time a share enters or leaves your account, you get an SMS and an email alert from the depository. This ensures you are always aware of any movement in your holdings.
How to Monitor Your Demat Account Safely
To ensure your account stays secure and you stay informed, follow these simple steps:
- Check Your Statements Regularly: You will receive a monthly statement from NSDL or CDSL. Review it to make sure all your shares are present.
- Keep Your Mobile Number Updated: Always ensure that the mobile number linked to your account is active so you receive all security alerts.
- Use the Consolidated Account Statement (CAS): This is a single statement sent by the depository that shows all your investments across different brokers in one place.
- Beware of Fake Calls: No official from the NSE, BSE, or your broker will ever ask for your password or OTP over a phone call.
The Role of Stock Exchanges (NSE and BSE)
The National Stock Exchange and the Bombay Stock Exchange are the platforms where the buying and selling happen. When you place a buy order on these exchanges, the shares move from the seller to your demat account through a process called settlement. Currently, India follows a T+1 settlement cycle. This means if you buy shares on Monday, they will be safely stored in your demat account by Tuesday evening.
Conclusion
Understanding the truth about demat accounts is the first step toward becoming a successful investor. By busting these 4 myths, it becomes clear that demat accounts are affordable, versatile, and highly secure. They provide a simple way for every person in India to participate in the growth of the country by investing in its top companies. Whether you are looking to save for your future or just want to try out the stock market, a demat account is a safe and necessary tool for your journey. Always refer to official sources like the NSE and BSE websites for the most accurate and updated information regarding market rules and security.