Open Demat Account
What is demat account?
Demat account helps store multiple securities in one location in Dematerialized form. Dematerialization simply means converting a Security from a physical form to an electronic form.
Trading in the Stock Market requires investors to have a Trading Account and demat account. After buying shares using a Trading account, they will be automatically stored in the Demat account. On selling shares using the Trading account, they will automatically be debited from your Demat account.
Here are some Securities to store in Demat account are –
- Equity Shares
- Government Securities
- Mutual funds
- Exchange-traded funds
How to open demat account Offline
Fill Out an Account Opening Form
Provide all your basic details such as name, address, date of birth, email ID, and phone number. You must
attach your photo and sign it.
Fill Out a Nomination Form
You can provide ID proof of the nominee as requested by the firm.
Fill Out and Sign a Power of Attorney Form
By submitting a power of attorney (PoA), you provide legal authority to the broker to act on your behalf based on the terms and conditions specified in the document.
Submit Your Bank Details
Provide your cancelled cheque so that they will be able to deduct the amount from your Bank account
for account opening fees and brokerage charges.
Complete Know-your-customer (KYC)
To be a KYC-complaint, you must provide ID Proof, Address Proof, and Income Proof.
Submit All Your Documents
After filling out all the forms, courier them to the Depository Participant’s nearby registered branch
Complete Verification Process
Once the registered office receives all your documents, they verify them. After this verification process is successful, you will receive your Demat account credentials.
If opening demat account online is difficult for you, you can choose an offline process.
Following are the simple seven steps to open demat account offline:
Fill out an Account Opening Form
Visit the head office or the nearest office of the Demat account provider you have chosen and take the Demat account opening form. Fill in all the details mentioned in the form, such as your name, residential address, date of birth, email ID, and phone number.
Attach your passport-sized photograph to the form, and sign it. When the form is filled, take it to the office of your Demat account provider and submit it there. Some providers may allow you to download the Demat account opening form online from their website and then submit a Hard copy of it.
Fill out a Nomination Form
Suppose any unexpected situation happens to you, and you already have a nominee for your Demat account. In that case, you can be confident that they will be able to claim the Securities you have in your Demat account without facing much trouble. So you will have to submit the nomination form to appoint a nominee where you have to fill in your details and the nominees’ details.
You will also have to provide the Identity proof of the nominee. You can visit the website of your Demat account provider or directly visit their office to get the nomination form.
The following are the documents for the nominee that can be submitted as their Identity proof:
- Birth certificate
- PAN card
- Aadhar card
- Driving license
- Voter ID card
If the nominee is underage, you will also have to give the details of the nominee’s guardian.
You can take the Hard copy of the Power of Attorney form from your Demat account provider, sign it, and then submit it to them. This Power of Attorney will allow your DP limited access to your Demat account through which they will be able to debit the Securities from your Demat account whenever you sell them in the Stock market.
The Bank details are crucial for the Demat account opening process. You will have to give your bank details to your Demat account provider, from where they will be able to deduct the brokerage charges and the account opening fees without causing you trouble with Physical cash.
You can submit the cancelled cheque of your active Bank account, which includes information like your IFSC code, Bank account number, the account holder’s name, etc., to your provider.
Know your customer or client [KYC] is a method of protecting financial institutions from various types of capital fraud. You’ll have to submit all the requested details to your Demat account provider in this process. Here are the following documents:
- Your Proof of identity.
- Your Bank account information
- Your Residential address
- Your Proof of income.
You will have to submit a Hard copy of all these documents to your Demat account provider, which will ultimately help them identify you as a genuine investor.
The offline method to open demat account may seem more hectic than the online method, but some investors find it more convenient than the online method. As you have already noted, in the offline mode to open demat account, you will have to fill out all the forms and courier them to a nearby registered branch office of the depository participant (DP). Always ensure that all of the documents you are submitting are appropriately filled out with accurate information, and none of them has expired.
Once the registered office receives your documents, they will verify whether you have the correct documents and accurate information about yourself. m. Make sure to present valid documents and accurate information about yourself. You may even call for an in-person verification [IPV], where your Broker personally verifies you and your documents. If the verification process is successful, you will receive all your Demat account credentials.
Note:You have to download an Account opening form, Nomination form, Power of Attorney form, & KYC form from the respective Depository Participant (DP) and print out all the forms
You can visit the registered office and ask them to complete the documentation process on your behalf.
Benefits of Demat Account
Mentioned below are the benefits of demat account.
There were various risks associated with physical shares early. After the advent of Dematerialization, various risks get eliminated during postage. Such risks are like loss and damage of shares. The chance of theft and forgery to Securities has also ended. Now it’s completely safe and secure to store and transfer your Securities with demat account.
Demat accounts store various Securities such as Equity, Government Bonds, Debentures, Sovereign Gold Bond, Exchange Traded Funds, Preference Shares, Treasury bills, Commercial Papers, Certificates of Deposits, Capitals Gains & Tax-Free Bonds, Mutual Funds, etc. It’s a one-stop place to keep all your Securities. You can manage all your Securities easily under the same roof. You can store and transfer your securities within a few clicks.
Initially, it was difficult to buy a random number of physical shares. You could only purchase a fixed number of physical shares as it was easy to issue. With the help of demat account, you can easily purchase any number of shares. There are no minimum or maximum requirements that you need to fulfil. If you choose to purchase a large number of shares, let’s say 100 or 100+, there’s no requirement for you to purchase shares multiple times. After you purchase, they will be automatically deposited in your Demat account.
There were various charges associated with issuing physical Securities like Stamp Duty, Handling charges, Postage and transportation costs, Paperwork Charges, etc. These charges aren’t that huge, but if you carry out multiple trades, these charges could add up and eat up a significant portion of your returns. With the incorporation of the Demat account system, these charges have been reduced significantly. You don’t have to pay for handling and postage charges. Apart from this, any charges related to paperwork get entirely eradicated, and all you have to pay is a small percentage as a Stamp Duty Charge. As compared to Physical trading, Online trading is affordable.
Initially, the settlement duration was approximately 14 days. So it was a long and tedious process for one to receive shares after placing an order or money after selling your Demat account providers and shares. Now, the duration has come down to about two days. You can buy a sell, especially immediately, and you receive the shares or the money as per your respective order within a short time. It saves investors a lot of time, primarily when liquidating their assets.
Due to digitization, there’s no necessity for posting shares to the new owner. There is an easy transfer of shares when buying or selling with the help of Delivery Instruction Slip (DIS) or Receipt Instruction Slip (RIS). There will be an automatic debit or credit after placing an order for buying or selling.
Dematerialisation is how shares are converted from Physical to Digital form. With the Depository Participants (DP), the process of Dematerialisation is pretty fast. Rematerialization is the process of converting Securities from Digital to Physical form. It’s a great option if you choose to close your Demat account.
Various lenders in India provide loans on your financial assets that you kept in your Demat account as collateral. You could be eligible to get a loan for about 80-85% of the total value of your investment portfolio. It’s a great way of getting loans if you ever need them during any emergency.
You can access your Demat account from multiple platforms. You can use your Mobile phone, Laptop, Personal computer, or any other smart device that has a web browser on it.
Speed e-Facility helps faster transactions because there is a quick requirement for the security instructions to get delivered to the broker’s account after its sale.
Any action taken by the company, like issuing dividends or refunds, is reflected in a short period with a quick notification. Actions like splitting shares or issuing bonus shares are also selected automatically in your Demat account. You need to go through no extra process to receive the extra shares.
Documents Required To Opening demat account
Document submission is the most crucial stage of opening demat account. An individual who wants to be a stock market investor and share trader needs to submit all the required documents to move ahead with opening demat account. Since it is mandatory for the process, they must submit their documents to the organization or demat account provider they have chosen to open demat account with. The type of Demat account you are opening does not affect the necessity of the documents.
Because it is compulsory for the process, the aspiring investor will always need to present their documents before their organization or their Demat account provider. For instance, if you’re planning to open a free Demat account online or offline, or even paying to open it by verifying the customer’s identity, in both cases, the demand for the documents will not be compromised by your Demat account provider.
The number of documents required from an individual can change from one Demat account provider to another, but at the same time, some standard documents are always needed.
The following are some of the standard documents:
- Proof of your Identity [ Passport, the Aadhar card, the PAN card]
- The Voter Identity Card
- The State Issues Driver’s Licenses
- The National Rural Employment Guarantee Act [NREGA] Employment Card
- A government-approved Document
KYC (Know Your Customers/Clients) is a standard requirement or a guideline designed to protect financial institutions from fraud, terror financing, or money laundering. IKYC is one of the critical requirements to open a Trading or Demat account with your broker. It is also easy to trace the flow of funds because of KYC.
The process of KYC in demat account is as follows:
- Fill in the KYC form, where you will have to fill in your basic details like your name, phone number, email id, residential address, office address, etc.
- Provide your Identity proof that includes your Driving license, Aadhar card, etc.
- Submit proof of your address that includes documents like an Electricity bill, a Telephone bill, etc.
- Submit your income proof.
- Submit your Bank account proof that includes the cancelled check from your active Bank account
Although other documents, including proof of identity, proof of address, proof of income, and proof of bank account, are required, your PAN card is mandatory.
Proof of Identity
The following documents you can submit as your identity proof:a. Driving License; b. Voter ID card; c. Unique Identification Number (UID)
- Driving License: You can apply for a driving license with documents such as your Voter ID Card, Ration Card, Birth certificate, and Permanent Proof of Address like self-owned house agreement, passport, etc.
- Voter ID Card: The Voter ID Card is provided by the Election Commission of India. It is an important document, and any citizen of India who does not have a Voter ID Card is not allowed to vote in India. You will require some standard documents like your results, birth certificate, a recent passport-size photograph, along with some additional documents for a voter id card. Having a voter ID card is essential because it allows you to vote and helps in eliminating election fraud.
- Unique Identification Number (UID): A Unique Identification Number (UID) is provided to every citizen of India by the Unique Identification Authority of India on behalf of the Central Government. The number gives a unique identity to every Indian citizen, and it can be used by them whenever they’re asked for identity proof.
Proof of Address
Proof of address is required to verify the residential house of the client in India. The following documents can be submitted as proof of address:a. the Voter ID Card; b. a New Electricity bill; c. the Passport; d. the Aadhar Card; e. the PAN Card
- Voter ID card
- Electricity Bill: It must be a new or less than three-month-old Electricity, Phone bill, or Housekeeping bill, etc.
- UnPassport: It is one of the most important documents to travel to a foreign country. A passport works as an Address proof as well as your identity proof. A passport works as an Address proof as well as your identity proof.
- Aadhar Card: Your Aadhar card is proof that you are a citizen of India. The information on your Aadhar card includes your phone number, address, and date of birth.
- PAN Card: Your PAN card works as the backbone of all financial transactions, and every taxpayer must have a PAN card.
Proof of Income
Submit a copy of your ITR Acknowledgement, etc., to verify your income and determine whether you can pay. It is necessary to trade in derivatives like futures and options (F and Os). You can submit the following documents as your proof of income:
- Tax certificate
- Salary slip
Proof of Bank Account
You have to submit a cancelled cheque to provide your bank details, such as the bank account holder’s name, Bank account number, and your IFSC code to confirm whether you have your own Bank account, which is required for transactions.
It is one of the most critical documents for opening demat account. Since the people of India require to have their PAN card to carry out all financial transactions in India. The Securities and Exchange Board of India [SEBI] made it mandatory to provide an original PAN card when opening demat account.
In conclusion, if you wish to be an investor or trader in the stock market, you will need a Demat account, as it holds your shares and other securities that you purchase from the Stock market.
While submitting documents for opening demat account, you have to ensure that none of them has crossed their expiry date and that they are all valid and appropriate for the submission.
Frequently Asked Questions
Dematerialization is the process of converting physical shares into electronic forms. Initially, everyone preferred having their securities noted on a paper, ensuring their record is in safe storage. That was when the paper was the only option to keep records. They could be easily carried around and stored in a safe location. The only significant drawbacks faced were that the paper would degrade over time, and robbers could steal them.
The dematerialization of securities is a great way to combat all the drawbacks that paper certificates have. Securities stored in Demat accounts in the Dematerialized form will be there forever without Rotting away or losing any information.
Depositories follow the Securities and Exchange Board of India (SEBI) to ensure the safety of your shares and other securities. You also have to ensure that you don’t share your details with others.
BO ID plays a crucial role in ensuring only you have complete access to your Demat account.
A Beneficial Owner (BO) ID is a unique number assigned to every Demat account holder. CDSL provides a 16-digit BO ID, while NSDL provides a 14-digit BO ID.
The first eight digits are fixed for all investors with the same depository participant (DP). Since they represent your depository participant identification (DP ID), each DP has a unique number assigned by the depository, which can be either numeric or an alphanumeric code.
The remaining eight-digit number is unique to every investor. Since they indicate the customer’s ID, the initial IN732568 represents your brokerage firm’s ID, while the last number 92155883 represents your customer ID. The BO ID is unique to every Demat accountḍ holder. When you open demat account with any DP, you receive a welcome letter from the depository. Apart from Greeting and Thank You, this welcome letter contains information about the account holder and their account. Along with your basic details, you will get your BO ID. If you misplace this welcome letter due to any issue from your end, you must not worry. You can get it with the help of your credentials, as your BO ID is unique to you. Otherwise, you must contact your depository participant (DP), and they will help you out with your BO ID.
The Demat account changed the way trading is performed all over the world. Just like the invention of the Internet changed the face of communication. It is essential to understand India’s trading history to know the history of Demat accounts in India.
Trading and the way shares are stored improved drastically over the past two decades. Carrying out trades was possible through physical presence at the initial stage. An investor would contact his stockbroker and inform them about the shares they want to purchase or sell. And the stockbroker would proceed further as per their requirements. The stockbroker or trader had to be present at the exchange to make trades on the investors’ behalf. It would take almost 14 days for this settlement process.
Investors and traders used to get physical share certificates as ownership proof. They had to store their shares and other securities in physical formats in simple terms. The physical maintenance and transfer of shares and other financial assets were costly. The stamp duty charge and the amount of work required to authenticate your security were tedious.
Physical trading faced drawbacks that included forgery, shares being lost in postage, excessive delay in receiving money or shares, etc.
In India, Trading officially began with the establishment of the Bombay Stock Exchange in 1875. Bombay Stock Exchange is the oldest Stock Exchange in Asia, commonly known as BSE. At the time of writing, BSE was the 10th largest exchange globally, having around 7400 companies listed.
In 1992, the Government of India passed the Securities and Exchange Board of India Act 1992. It has become history since the birth of the electronic Demat account. In India, the Demat Account system came into existence for trades on the NSE in 1996. The National Stock Exchange (NSE) is the 2nd largest exchange in India. It is widely known as the 11th largest exchange in the world.
The government of India passed the Securities and Exchange Board of India Act 1992. The Securities and Exchange Board of India (SEBI) is the regulatory body that came into existence in 1988. The objective of the Indian Government behind SEBI is to regularize trading to curb the ill effects of physical shares in the Indian stock market. They perform under the jurisdiction of the Ministry of Finance in India.
On February 1, 2000, NSE started facilitating online trading in India. On 1st April 2000, Internet trading began with around 79 members looking to do so. Geojit Securities has become the first brokerage firm in India to go online.
National Securities depository Ltd (NSDL) is the first National depository in India established in August 1996 by NSE and other India’s leading financial institutions to provide Dematerialization facilities.
Central depository Services Ltd (CDSL) is another primary depository in India regularized in February 1999. It was promoted by the BSE and a few commercial banks in the initial stage.
An NRI account is an account that must be opened by a Non-Resident Indian (NRI) with a financial institution in India to avail of various financial products and services in India. It is authorized by the Reserve Bank of India (RBI).
There may be various reasons for individuals to leave India, and one of them is to get employment in a different nation. According to the Income Tax Act 1961, an NRI is an individual who has been:
● living out of the geographical area of India for at least 120 days in a year and
● has spent less than 365 days in India in four previous years.
These individuals are eligible for opening NRI accounts.
DDifferent types of NRI accounts are provided in India for NRIs with different needs and requirements. You need to understand the various features and benefits of such accounts so that you can choose the one that suits your unique needs and requirements.
There are three major types of NRI accounts registered under the Reserve Bank of India (RBI):
● Non-Resident Ordinary (NRO) Account
● Non-Resident External (NRE) Account
● Foreign Currency Non-Resident (FCNR) Account
NRO Savings Account
An NRO account stands for a Non-Resident Ordinary Account. They are Savings accounts. It allows NRIs to maintain and manage income earned in India in INR denominations through sources like rent, dividends, and so on. There can be joint account holders between NRIs and Indian Residents. The interest earned on an NRO account is subject to Tax Deductible at Source (TDS).
Whenever an NRI deposits foreign currency in his NRO account, it will be convertible to Indian rupees at the ongoing foreign exchange rates.
NRE Savings Account /Fixed Deposit Account
A Non-Residential External is commonly known as an NRE Account that allows NRIs to maintain earnings from the country where they reside. They allow you to hold in Indian rupee denominations. The interest earned in an NRE account is non-taxable in India.
Since an NRE account holds money in INR denomination. When you deposit foreign currency in an NRE account, it is converted to Indian rupees at the current foreign exchange rate.
Some of the features of this type of account are as follows:
● The principal amount and the interest are transferable between two NRE accounts and between an NRE and an NRO account.
● In the case of NRE accounts, there can be joint account holders between NRIs and Indian Residents.
Foreign Currency Non-Resident Accounts are commonly known as FCNR accounts, allowing NRIs to deposit income earned overseas in foreign currency only. They are fixed deposit accounts. Any one of the foreign currencies is held in this type of account. The only condition is that the RBI should give it authority. The interest earned on an FCNR account is non-taxable in India.
The currencies that you can deposit in an FCNR Account are –
1. US Dollars (USD)
2. Canadian Dollar (CAD)
3. Australian Dollar (AUD)
4. Euro (EUR)
5. Great Britain Pound Sterling (GBP)
6. Singapore Dollar (SGD)
7. Hong Kong Dollar (HKD)
8. Japanese Yen (JPY)
9. Swiss Franc (CHF).
If an individual has earnings in any of these currencies, their deposits will remain as it is. But, if the individual earns in any other currency, then the deposits made in it will get converted to one of the currencies you choose from above.
The feature of an FCNR Account is as follows:
● The principal amount and the interest from an FCNR Account are transferable between other NRE or FCNR accounts.
Investors and traders in India can open demat account from any national depositories. Both NSDL and CDSL ensure that all the securities in Demat accounts are safe and none are tampered with. NSDL follows the international standards for maintaining Dematerialized shares and other securities.
A depository participant (DP) enables you to create demat account once you are eligible with the criteria set by the depository. It is a mediator between a depository and the investors.
A depository participant can be a stockbroker, a bank, or any other financial institution.
Depositories and depository participants
A depository is an organization that assists investors and traders to execute trades efficiently. It provides the facility to open demat account to help store financial assets electronically. Here are two significant Depositories in India:
1. The National Securities depository Limited (NSDL), under the National Stock Exchange (NSE) in 1996.
2. Central depository Services Limited (CDSL), under the Bombay Stock Exchange (BSE) in 1999.
Both these Depositories, NSDL and CDSL, provide facilities to store share certificates and other securities. They are responsible for maintaining all Demat and trading accounts.
Although both these Depositories are situated in Mumbai, they provide their services across India through many depository participants (DPs).
Here are some of the examples of depository participants in India are:
● depository participants of NSDL
● National Stock on India Ltd
● Industrial Development Bank of India
● State Bank of India
● HDFC Bank Ltd
● Deutsche Bank
● Axis Bank
● Bombay Stock Exchange Ltd
● Bank of Baroda
● Bank of India
● State Bank of India
● HDFC Bank Ltd
Functions of a depository participant (DP)
● It provides a smooth process to open demat account.
● It provides a BO ID number that the depository gives.
● It helps in the Dematerialisation of securities. It is the conversion of Physical stocks and other securities into electronic form.
● It helps in the Rematerialisation of securities. The Remat process converts securities held in electronic form back into Physical form.
● It facilitates the transfer of Securities.
● It facilitates you to keep Securities in your Demat account as collateral for securing a loan from a financial institution.
● It facilitates an easy fund transfer from your bank account to your Demat account and vice versa in no time.
Individuals with enough knowledge about the Business and the Financial Market can become depository participants. They can be Brokers or Sub-Brokers with enough funds to convert their Businesses into depository participants. Banking and non-Banking Financial Company (NBFCs) companies or partnership firms can register themselves with Depositories.
Specific eligibility criteria need to be fulfilled. According to The Depositories Act, 1996 and SEBI (Depositories & Participants) Regulations, 1996, there is a list of eligible entities to become depository participants.
The list is given below:
● Public Financial Institutions can easily be depository participants.
● Scheduled Banks include Foreign Banks approved by the Reserve Bank of India (RBI).
● State Financial Corporation was founded under the State Financial Corporations Act, 1951.
● Government entities promote institutions that are engaged in granting financial services.
● A Stock brokerage firm with a Certificate of Registration under the SEBI Act, 1992.
● Non-Banking Financial Company has a net worth of Rs.50 lakh or more.
● Registrar of Issue and Transfer Agents should have a minimum net worth of Rs.10 crore.
A depository participant is an institution that works for the investors per the Depositories.
They open demat account and a trading account and provide other helpful information for investors. They make sure that you have good experience in trading your securities.