What is a Demat Account?
Demat Account performs similar functions to that of a bank account. In a bank account, an account holder holds money in the account, and it makes respective entries in the passbook.
In a Demat account, instead of money, it holds securities in electronic form, from which credit and debit of securities take place.
Account Types :
Essentially there are three types of Demat account:
- Regular Demat account: Traders who reside in India use this type of account.
- Repatriable Demat account: This is a Demat account which is useful to the Non-Resident Indians. As it allows fund transfers abroad. Such a Demat account requires an associated NRE bank account.
- Non-Repatriable Demat account: This account, too, is for the Non-Resident Indians. However, in this case, funds cannot be transferred abroad, and this account requires an associated NRO bank account.
How to use a Demat account?
Using a Demat account is rather straightforward. An investor can open a an account by registering with an investment broker or a sub-broker. Access to a Demat account requires an active internet connection and a transaction password which is provided after the successful opening of a account.
The first step in opening a Demat account involves selecting a Depository Participant (DP) who will act as an agent to the depository. This will be followed by filling of the account opening form. And submission of identity proof, address proof, PAN card, and a passport size photograph. You can find here a detailed description of all.
Once the investor agrees to the terms of the agreement and the charges, an in-person verification is initiated. Upon successful processing of the application, post verification, a client provides ID or an account number. The investor can use this to access his or her Demat account online. An investor can then use it to buy and sell shares, stocks, and derivatives, and use it as a storehouse for the stock portfolio.
How To Open An Account
You can open a Demat account with no shares at all. It does not require any minimum balance. The first step towards opening an account is to select a DP, fill up the account opening form, and submit the document. Having a PAN card is a compulsory requirement for opening a Demat account. We explain here the rest of the steps.
- Once you submit the form, you will get a copy of the rules and regulations, terms of the agreement, and the charges you will incur.
- In-Person verification is also necessary. A member of the DP staff will contact the individual to verify the details provided in the account opening form.
- After the verification, the DP person will provide an account number or client ID. You can also check these details by checking your account details online.
- You have to pay an annual maintenance fee for operating an account. This fee covers the account transaction charges. The fee is levied for debiting securities to and from the account on a monthly basis. The charges are subject to your choice of the DP. Some DPs charge as per the amount of the transaction while the others charge a flat fee which is the same for every transaction. The fee can also vary on the type of transaction (buying or selling). There can be another fee for converting the share into physical form or vice-versa.
How To Link Aadhaar With Demat Account Online
Linking Aadhar to Demat account is easy and an effortless process. Follow the below-mentioned steps to complete the linking:
- Visit the NSDL website and click on the ‘Link Aadhaar with Demat Account’ tab on the home page.
- A new page listing the linking process and steps will appear. Click on the ‘Get Started’ tab at the end of the linking process.
- Enter the account number (DP ID), the name of the account holder as well as the client ID and PAN number.
- Enter the verification code and click on ‘Proceed’.
- Once this is done, an OTP (One Time Password) will be sent to the registered mobile number or email address as per NSDL records.
- The Demat information will then be displayed on screen for confirmation. If the information displayed is correct, proceed with the linking process.
- Verification and authentication of the information will be done. Successful authentication will result in the linking of Aadhaar with the Demat account/accounts.
Important Points to Keep in Mind
The investor should keep the following points in mind before you link Aadhaar:
- You should link your mobile number and email id with NSDL in order to authenticate yourself
- You should register your mobile number with your Aadhaar to authenticate using the OTP-based verification.
- The investor should keep your DP Name, DP ID, PAN and other details handy before linking the account
- Refrain from using public computers or shared internet connections to access your details online to prevent hacking or phishing.
Benefits Of Demat Account
- Common Bank: Dematerialisation does not only help in trading stocks. It works for debt instruments like bonds as well as mutual funds. An investor can hold all his investments in a single account.
- Automatic Updates: Despite being a common account for all your securities transactions, you do not have to provide your details every time you deal with a company. Your account represents you and has all the necessary information regarding the transaction.
- Cost Reduction: A Demat account does not require stamp duty for securities. This has resulted in significant cost reduction. Earlier, the stamp duty was 0.5% for each stock that can now be avoided completely through dematerialization.
- Easy to Hold: Paper certificates are vulnerable to several types of physical damage such as water damage, fire, pests, etc. Even minor damage can cost you a fortune. However, this is not the case with the Demat account.
Which Bank Is Best For Demat Account
An investor needs 3 accounts to invest/trade in the stock market in India. This includes:
- Saving Bank Account
- Trading Account
- Demat Account.
All national banks offer a 3-in-1 account which includes all the above 3 accounts opened at the same time.
The 3-in-1 account is the set of 3 accounts that are linked together for seamless transactions between them. The 3-in-1 account makes the stock market investment very easy for casual investors and beginners in the stock market.
All large banks in India offer a Demat account. This includes SBI, PNB, ICICI Bank, HDFC Bank, Yes Bank, Axis Bank.
Demat account is an account where you hold the shares of the company in an electronic format. They are like a bank account but instead of keeping the money; we keep shares, mutual funds, bonds, ETFs, etc.
Best bank to offer Demat account in India
Following are 5 best banks to offer Demat account:
ICICI bank Demat account is the best among all others for the following reasons:
- Offering a 3-in-1 account for over 20+ years.
- 10+ lakhs active customers.
- Nice website and mobile app (ICICIDirect) to manage the Demat account online.
- Invest/trade-in Stocks, F&O, Mutual Funds, ETF, FD, Insurance, Loan, etc.
- Customer services in branches of ICICI Securities.
Best Demat Account Online
Best Demat Account For Small Investors
A small investor is someone who is not a trader or a high volume Investor. A small investor could be someone who is also looking for a long term investment or for tax saving purposes. A Broker with a very low brokerage rate & who provides very good advisory will always be preferred.
You may take into consideration:
- Account Opening Charges
- Annual charges
- DP Charges
- Minimum Transaction Charges
- Interest for Delayed Payment
- Support Location
Post experience with the renowned brokers, we realized that Zerodha leads the game here too. This discount broking house doesn’t change any brokerage on delivery trading which is ideal for small investors. Angel broking is at no.2 in this list as their brokerage rate is also low & their advisory services are quite accurate.
Here are some best Demat account for small investors:
A Demat account with a bank is the best option available for beginners and casual investors. Almost all large banks offer a 3-in-1 account. This account offers a hassle-free stock market investment. It actually doesn’t matter which bank you choose for your Demat account as they offer very similar services at almost the same Demat brokerage charges.