Dematerialization is a process in which an investor’s shared certificates in the physical form are converted to electronic format. Shares are then stored in what is known as the Demat Account. With the help of a Demat Account, an investor keeps all his government securities, mutual funds, shares, bonds, etc. in one place and facilitates transactions in a more effective and efficient way. For any prospective investor, the question of how to open a Demat Account, therefore, becomes relevant.
As far as how to open a Demat Account in India is concerned, an investor can understand the process as regulated by the Securities and Exchange Board of India (SEBI). Under SEBI, two depositories are registered: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). Any Depository Participant (DP), someone who acts as a mediator or agent for an investor, must be registered under these two licensed operators in order to provide depository related services.
Why have a Demat Account?
Before understanding how to open a Demat Account, one should also look for the reasons why to have a Demat Account. Given below are some of the reasons why an investor would be benefitted from having a Demat Account:
Security – A Demat Account is more secure than keeping shares in the physical form. With the physical shared certificates, one runs the risk of damaging or losing them. Besides, the burden of keeping them safe rests totally on the investor. With the Demat Account, however, this situation is radically altered: it is the DP who becomes responsible for the safety of the investor’s stock, thereby keeping the latter from otherwise unavoidable worries. Thus, it is important to have a Demat account and for doing so, you should know how to open a Demat account.
Accessibility – A Demat Account holder can access all his stocks not only under one platform but also from anywhere. With the digitization of his shares, the investor gains the advantage of monitoring, trading, or transacting his shares through the flexible medium of desktops, laptops, mobile phones and tablets.
Freezing – An investor with a Demat Account also gets the advantage of freezing his account for a specific period of time whenever he wants to. This is usually done to avoid unwanted deductions or other such undesired activities. However, one can freeze their Demat Account on a condition that a certain limit of securities is maintained in their account.
Dematerialization and Rematerialization – The Demat Account is exceptionally useful in converting the physical share certificates into the dematerialized form. However, it is not at all the case that this process is permanent and irreversible. One can just as well reconvert the dematerialized shares back into its original physical form through the process known as rematerialization. Therefore, depending on what an investor’s requirement is, he or she can convert or reconvert their shares accordingly.
Loan Option – With the assistance of a Demat Account, the investor can also become eligible for a loan. He can use his investments in the Demat Account as collateral against which he will be availed a loan.
Quicker Transactions – In comparison to a physical form of shares, doing transactions through a Demat Account is a faster process and reflect the credit and debit of any transaction at the earliest. Also, profits and dividends on an investor’s investments are credited faster and directly if he or she has a Demat Account.
Lower Expense – The charges involving stamp duties and handling charges are done away in the Demat Account, thereby lowering the expenses of an investor.
How to Open a Demat Account?
Opening a Demat Account is a step-by-step gradual process. It is not only transparent but quite simple for any investor or potential investor. Learn how to open a Demat account by following these steps:
First Step – Choosing a Depository Participant with whom one wants to open a Demat Account. Banks, investment platforms, stockbrokers, etc. are some of those who provide DP services to investors. One should opt for the DP with whom one is most compatibility with.
Second Step – Upon having selected a DP, the investor would be required to fill-up an application form with all the asked for details.
Third Step – The next step after filling-up the application form requires that the investor should submit the necessary details concerning his identity proof, income proof, and address proof. Photocopies of documents such as PAN card, Aadhar Card, Voter’s card, electricity bill, gas bill, bank statement, etc. comes handy in this step.
Fourth Step – IPV, also known as In-Person Verification is the procedure following the submission of the application form and necessary KYC details. The investor would be asked by the DP to be present in person in the latter’s office to verify the documents. Though, these days many DPs also offer online services that prevent an investor from appearing in person by verifying through a webcam.
Fifth Step – The investor, then, would be asked to sign the Demat Account agreement stating the terms and conditions along with all the rules and regulations to follow by both the investor and the Depository Participant.
Sixth Step – Once all these above-mentioned steps are completed, the investor will be handed a unique Identification number with which he will be doing all his future transactions.
With these six easy and simple steps, the problem of how to open Demat Account is resolved.
Things to keep in Mind
After having resolved the question of how to open a Demat Account, an investor should also keep in mind various miscellaneous things the attention to which would help them in making the best choice in opting for a Demat Account.
- What type of DP (discount stockbrokers and full-service stockbrokers) he or she is selecting?
- What are the different charges levied on his Demat Account?
- Which DP provides better waives on the charges?
- How the customer support services are different from one another in providing the services?
- What features the DPs provide which would suit an investor accordingly?
Opening a Demat Account, therefore, is not only relatively simple but also beneficial for the investors. The fact that the investors get to maintain a Demat Account even without having any balance in the account encourages potential investors to look up to this option. And why not?
If a platform provides all the facilities of investment as was before and adds to it a whole lot of advantages with innovative technology, it is but evident that a Demat Account lays the ground for fresh opportunities for the investors.