Understanding a Demat Account

A demat account is the first requirement if one plans to ‘buy’ or ‘sell’ shares as per Sebi norms. The account stores all your shares in dematerialized or electronic form.Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. So, every shareholder will have a dematerialized account for the purpose of transacting. Since demat account charges annual maintenance fees, it is advised to close the account to avoid paying unnecessary charges. In case a demat account holder has shares lying in the account, selling them or transfer them to some other account or remat them (get them back in physical form) is the advised option. Non-payment of annual maintenance charges or other charges can result in depository rejecting your application. 

Depository is a place where financial securities are held in dematerialised form. It is responsible for maintenance of ownership records and facilitation of trading in dematerialised securities. However, a Depository Participant (DP) is described as an Agent (law) of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI. There are two depositories which are functional in India – National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CDSL). Various Depository Participants linked to each one of them in India. All the details in form of electronic records of equity and debt are kept there.

How do depository work

Depository interacts with its clients or investors through its agents, called Depository Participants normally known as DPs. For any investor or client, to avail the services provided by the Depository, has to open Depository account, known as Demat A/c, with any of the DPs.

Demat account

A Demat account or dematerialised account converts the shares from the paper form into an electronic form. They are similar to pass books offered by the banks where you have opened an account. You can easily buy or sell shares of different companies using your Demat account. All the transactions are entered into it akin to the bank passbook.

How to open a Demat Account?

In order to open a Demat Account the interested candidate has to follow these general instructions:

• The interested candidate has to approach a Depository participant (DP) who is registered with the National Securities Depository Ltd. (NSDL) and

• the Central Depository Services Ltd. (CSDL). The sole function of the DP is to act as an intermediary between the investor and the depository.

• Then the relationship manager from the DP that you have approached provides you with an application form that you need to fill and deposit with them. Some documents like identity and address proof are mandatory requirements and can’t be bargained with. The interested candidate needs to produce an original PAN card during the process of account opening.

Advantages of trading through a demat account?

• A Demat Account promises security in transactions, timely delivery of shares, reduced fraudulent transactions.

• As the paper use is limited in the process so costs associated are reduced greatly and the cost per transaction is also lowered than physical trading.

• The process has provided mobility and ease of working from anywhere.

• In addition investors can invest in IPOs, ETFs of gold and carry out trading at huge volumes that was not possible earlier.