Why a DEMAT account is a must for 21st Century Investor? 

What is a Demat account?

Demat Account or Dematerialised account provides the facility of holding shares and securities in electronic format. In the past, shares, bonds and mutual funds were only traded in physical form. Understandably, dealing with them was time-consuming, and even risky, as revealed by several cases of fraud. The process of dematerialization of shares was initiated in 1996 wherein physical shares were converted into electronic form.

How does it work?

A demat account is similar to a bank account. When you buy a share through an intermediary (stockbroker or bank) from a stock market, i.e. the National Stock Exchange or the Bombay Stock Exchange. Then, after clearing through the NSE Clearing Limited or the Indian Clearing Corporation Limited, the particular stock is credited to your Demat account.

There are two Demat service providers in India – the Central Depository Services Limited (CDSL) and the National Securities Depository Services Limited (NSDL). So, after a stock transaction takes place at the stock exchange, it is cleared by the clearinghouses, and finally, the stock is deposited in the Demat account held at any of the depositories.

How to open a DEMAT account?

To open a DEMAT account you can contact a depository participant (DP) such as a stockbroker or its channel partners/sub-brokers, commercial bank or financial institutions (FI).

You may need the following documents to open a DEMAT account:

1.    Bank account: Signed Cancelled Cheque

2.    Address Proof : Driver’s license, passport, Aadhaar or voter’s ID card

3.    PAN Card

4.    Passport size photo

Normally, it takes 2-3 days to open a complete DEMAT + Trading account.

Click here to open a FREE trading and Demat account with Edelweiss Broking Limited in 15 minutes. Paperless, Hassle-free and quick

Checklist for opening a Demat Account

Stability and Track Record:       

A reputed financial institution with Strong financials and management, Investor's positive feedback. Diversified business activity is a must check.   

Charges: 
Consider the commissions and other fees that broking companies charge. But don't over-emphasize the point. Also, understand the facilities offered. All brokerage houses have at least two plans. One is usually for intra-day traders and the other is more suitable for long-term investors.

Minimum Trades: 
Check if there is a clause or sub-clause about minimum trades that you will have to do as well as the penalty for not complying with the requirement. 3-in-1 accounts come with a savings account. In such a scenario, some banks have rules about minimum balance.

Research Reports: 
Most full-service brokerages also offer research services. This allows investors to read analysts' reports on companies or sectors of interest or access data on companies. See if you need these services, as these may help you make better decisions on buying and selling stocks and mutual funds.

Customer Support: 

Despite the advanced use of technology, things may go awry once in a while making a transaction. In such cases, you need support from an easily accessible back-end team who will get on the phone and resolve these issues for you speedily. Check with the broker about the availability of a dedicated Relationship Manager or back-end support team who can place an order through telephone if anything goes wrong with the online facility. Look for customer reviews online or on specialized forums such as mouthshut.com or user comments on sites such as chittorgarh.com.

Branch Network:
Some individuals prefer to visit the office to talk to a company executive. If you are one of them, check if the broking house has a local office. Similarly, if you think you may want to place some orders in person or over the phone via an actual representative instead of a recording, see if it's possible. If it is, check the cost. For example, RKSV has offices only in Mumbai and Delhi. But the online facility can be used anywhere. As against that, Edelweiss Broking limited a full-service broker having offices in multiple locations.

Benefits of a DEMAT account

1.    Loans against securities in the DEMAT account are easily available. Banks take the pledge of such shares while extending the loan.

2.    Even a single share of any price can be Purchased or Sold through the DEMAT account.

3.    Shares Can be Transferred Immediately.

4.    Dematerialized shares can be traded from anywhere and you can easily track your portfolio any time.

5.    DEMAT accounts are highly secured in nature  because 

In the first place, Scrip’s are sold through your account upon your instruction then 

Proceedings are transferred to the broker's account and finally, you have to transfer the required amount into your Bank account from the broker's account. Hence three levels of authentication required.

6.    Various corporate actions such as bonus issues, dividends, stock splits, etc., the benefits are automatically credited to the DEMAT account or its linked bank account.

Types of Brokers:

Any transaction in the stock market; be it buy or sell, requires a broker’s intervention who works as an agent between the market and market participants. Brokers are registered members of exchanges regulated by the Securities and Exchange Board of India (SEBI). Today, the retail brokerage business model is classified into two broad categories

Full-service brokers.

Provides research-based advisory service, Relationship Managers to all customers, Operate out of many offices and branches across the country, Brokerages are negotiable only on higher traded volume. The most popular stockbrokers in the full-service category include ICICI Direct, HDFC Securities, Edelweiss Broking limited.

Discount brokers.

Just provide a trading platform to investors but no advisory charges low brokerage. Very few physical branches. All queries need to be resolved through customer care numbers. Before picking any type of broker, investors should first understand these two options by comparing the services and features, charges, minimum opening balance clauses, etc. The most popular stockbrokers in the discount broker category include Zerodha and Upstox.

A beginner should always go with a full-service broker and after gaining substantial trading experience, he/she can switch if he feels like it.

Things to keep in mind.

Do note that while opening a Demat account with a depository participant, requests for two types of accounts are created i.e. a trading account with the DP and another for the Demat account. You don’t need to have a Demat account for intraday transactions, as they can be executed through the trading account held with the DP. Similarly, for trading in futures and options, there is no need to open a Demat account. When you sell a share, the broker pulls it into your trading account from your Demat account for further settlement. For transferring the share from the Demat to the trading account, the broker usually gets the power of attorney signed from the account holder at the time of account opening. A power of attorney is not mandatory, but it makes the process quicker when you execute a sell transaction through the broker.

What is PoA?
While opening an account, in addition to filling up the application forms, one needs to sign on the agreement papers including a 'specific' power of attorney (PoA) to the broker for transfer of securities for margin purposes, for settlement of trades and funds from the client's bank account and for recovering the amount due to broker/DP. The PoA carries the bank and the Demat details and must be executed in the name of the broker and not in that of its employees.

What is DIS?

A Demat account is equivalent to a bank account. Here, the securities are kept as balance in your account which can be later sold or transferred as per requirement. Transfer of shares between two Demat Accounts are done through Delivery Instruction Slip (DIS).Upon submission of DIS, the Depository Participant processes the DIS and debits the client's account with the said no of shares. Simultaneously, the target Demat account is credited with the same number of shares.