By Nupur Verma
When we think of opening a Demat account, what are the different parameters we need to keep a check of ? Well, this article elaborately teaches you the nuances you could face by dividing it into five steps.
Money cannot buy happiness. Happiness comes when you respect and value a 10 rupee note in your wallet as well as 10 lakhs in your bank account. You can buy a high end refrigerator of Whirlpool, a Royal Enfield motorcycle from Eicher motors ,wear comfortable casuals from Jockey, , enjoy the taste of your favourite burger from Burger king and gorge on cheese from Britannia.
Have you once thought that when you buy these products you only have their physical possession? What if you bought the shares of these companies? You would get ownership of these shares and also get to be part owners. If you want to grow your wealth by participating in a company’s growth story, then the first step is to open a Demat account.
To understand how to open a Demat account, we first would need to know exactly about a Demat account. Of the five steps needed to open a Demat account, this would build a foundation.
What is a Demat Account?
A Demat account (Dematerialized account) is an account which holds investments such as shares, bonds, government securities, mutual funds, insurance and ETFs in an electronic format.
It is similar to a bank account which holds money. This account holds your investments in an electronic form, which is easily accessible with a laptop or a smart phone.
There is a unique login ID and password needed to access it. In India, Demat accounts are maintained by two depository organisations, National Securities Depository limited (NSDL) and Central Depository services Limited (CSDL).
These depositories appoint agents known as Depository Particiants (DP), who act as agents between themselves and investors. Having a Demat account is a must if you want to invest in the stock market (NSE&BSE).
What Are The Five Steps To Open A Demat Account ?
1)Decide on a Depository participant(DP)
The first step to open a Demat account is to choose a depository participant. These are Demat account providers. In India, banks, stockbrokers, and online investment platforms offer DP services. It is advisable to choose a DP whose services and features match your requirements.
Stock brokers are members of depositories like NSDL and CSDL. Even if the stock brokers go bankrupt, your shares are safe with depositories as your shares are maintained by these depositories. Here is a list of top 10 stock brokers based on parameters like brokerage and AMC charges, number of customers, credibility of sharebrokers, customer support etc.
2) Angel broking
5) 5 Paisa Demat account
6) Kotak securities
8) Motilal Oswal
9) ICICI Direct
To know more about top 10 brokers in India 2020, a good look at this article would help – https://top10stockbroker.com/
2) Compare the Fees and charges for opening a Demat account
The Fees and charges levied by stockbrokers should be competitive and transparent and should not cause any financial burden to investors.
These include account opening fee, brokerage, AMC charges, dematerialisation and rematerialisation of share certificates and redemption.
A comparative analysis is a must before choosing the brokers otherwise your profits would be eaten up by the brokerage itself.
You can choose a discount broker or a full service broker based on your need and requirements. Generally a discount broker does not provide any advisory services apart from the share trading platform.
These are technology driven and offer the cheapest brokerage. Zerodha, 5Paisa and Upstox are the most popular discount brokers.
On the other hand a full service broker provide research, trading, and advisory facilities in stock, commodities, currencies, mutual fund, IPO, insurance, tax tips etc. They also offer a dedicated relationship manager, financial planning and wealth planning services. ICICI Direct, Motilal Oswal, Angel broking, Sharekhan, Edelweiss Broking are popular names.
3) Submit the account opening form, fulfil the KYC norms and go through the verification process
Visit your chosen DP’s website and fill out the online Demat account opening form. Most of the DPs offer both trading and Demat account.
A trading account is necessary for buying and selling shares in the stock market. A Demat account isn’t of much use without a trading account, except for holding your financial assets. That is why it is important to link both these accounts while opening a Demat account.
The next step is to fulfil the Know your customer (KYC) norms.You need to submit Scanned copies of KYC documents like your identity proof, address proof, bank account statement, and income proof. Thereafter you will be asked by your DP to go through a verification process. Many depository participant now offer an in person verification services online through the use of a webcam or a smartphone.
4) Sign the agreement copies and the Beneficial owner ID number
Once the verification process is complete, you will be asked to sign an agreement with your DP. The agreement generally contains all the duties and rights of the depository participant and the investor.
Once this is done your DP will process your Demat account opening form. After the approval of your application, you will be given a unique Beneficial Owner Identification number(BO ID). You can use this ID to access your Demat account.
5) File your Nomination
Most people tend to forget this step while opening a Demat account. It is critical to have a nominee for your Demat account as it makes the process of transmission of shares much easier in the future. Of the five steps to open a Demat account, this is the last and the most important one.
The salient features of a Demat account are not only limited to its accessibility but it also comes down to convenience, safety and cost efficiency. It can be used to hold other electronic financial instrument such as bonds, mutual funds, and debt securities apart from just supporting the equity share market.
A Single, joint and a multiple account can be opened. The Power of attorney can be granted to authorise some other person or even your DP to operate your account on your behalf.
By going through through these easy to read and simple guidelines, you too could fall within the 5% category of Indians who hold a Demat account.
This article is authored by Nupur Verma. She is an active blogger and writes about topics such as financial planning, investments and wealth management.
If you want to understand the stock market better, it would be a good idea to check out this article – 5 things to know while applying for an IPO.