A Demat account is the short version of a dematerialized account. It is an account that is used for holding the shares and securities in an electronic format. This makes the share trading easy for the users, especially during any online trading. A Demat account will hold all the investments that any individuals make in shares, exchange-traded funds, government securities, bonds, and mutual funds within one place.
What is dematerialization?
This is the process of converting the physical share documents and certificates into electronic form. It becomes a lot easier to maintain and also, it is accessible from all parts of the world. Any investor, who wants to trade online, has to open a Demat account along with a depository participant (DP).
What are the documents required for opening a Demat account?
The Demat account is identical to a bank account. The only difference is, it is used for holding the securities of other financial instruments. Here is the list of mandatory documents that you need to open a Demat account.
- Proof of identity (driving license, Voter Id, or Aadhar card)
- Proof of address (passport or Voter ID or Aadhar card)
- Proof of income (for the trading derivatives like F&O or a copy of ITR acknowledgment)
- A proof of your bank account (a canceled cheque)
- PAN card
- 3 passport-sized photos
What are the features and benefits of opening a Demat account?
The Demat accounts were introduced in India in the year 1996. Before they were introduced, the shares and securities were physically issued and traded. The following are the benefits of opening a Demat account.
- A Demat account has lower risks of the thefts, losses, or damages. Along with that, there cannot be any bad deliveries of fake securities when you open a Demat account.
- A Demat account makes it easy to hold on to the share and trading certificated. Also, it is simple to track the performance of the shares through a single account.
- With the Demat accounts, there is no limitation to the buying and selling of shares. You can deal with odd lots and single security.
- With physical certificates, there were a lot of additional costs involved. These included stamp duty, handling charges, and other add-on expenses. These extra expenses are completely eliminated with the Demat account.
- Reduced time is another benefit of using a Demat account. This enables the user to make more purchases and sales of the security holdings within a short period.
The following are the features of a Demat account.
- It is easy to transfer the shares and holdings using the delivery instruction slip (DIS) for selling or buying shares.
- The Demat account offers quicker dematerialization and rematerialization of the securities. This means it can easily convert the physical certified into electronic form and then again it can be reconverted into the physical form.
- The Demat account holders will have numerous lenders that are ready to offer a loan. The electronic holdings can be used as collateral for getting loans.
- If needed, the Demat account holders will be able to freeze their account for a time period.
- Since Demat accounts are operated electronically, they can be accessed using smartphones, desktop, tabs, or any other smart devices.
- Demat account comprises e-slips for the users which makes the complete process much less time-consuming.
- If any brokerage organization offers dividends, interests, or refund to the investors, these benefits are available to the Demat account holders.
Who are the top 10 Demat account providers in India
Now that you know which ones are the top 10 Demat account providers in India, let us have a look at the important factors to consider while choosing the best Demat account provider.
What are the factors to check before choosing a Demat account provider?
Here are the following things that you need to check while choosing a Demat account provider.
- Consider the brokerage charges. There is an existing misconception that the Demat account provider with the lowest brokerage charges can be a reliable one. But that is not true at all. The Demat account opening fees and brokerage charges will vary according to the brokers. They will charge transaction fees when you sell or buy equities. Along with the opening charges they can also charge maintenance fees as well. You have to be careful about the lowest brokerage charges and the transaction charges.
- It should not be a time-consuming process to open a Demat account. The best brokers in India offer complete digital ways to open a Demat account. Thus, the broker should be able to execute the entire process of documentation and verification through digital mediums. Also, the self-identification work according to the SEBI guidelines should be done through real-time online videos. Thus, you have to ask your broker how soon you will be able to start trading after opening a Demat account.
- Choosing the right trading platform is very important. A lot of platforms will try to lure in clients by claiming to offer charge lowest brokerages. Do not fall into the trap, especially if you want to get into intraday trading. At present, web-based and mobile trading platforms are becoming popular. Do some research on the trading platforms. Remember the platform has to be reliable, stable, and bug-free.
- Seamless operation is another important factor in choosing a Demat account provider. It is not a troublesome process to deal in equities and derivatives because even a delay of one second will make a lot of difference within the losses and profits. Thus, the best option is, if the broker can offer a 2-in-1 Demat and trading account so that you will be able to avoid the delays in transactions.
Are you getting the online analytics on the Demat holdings? The depository participants (DP’s) extend their services apart from offering a vanilla account statement. The DP’s offer a wide array of online analytics that includes real-time valuation on the direct CTAs for trading clients, the analytics on the Demat inflow/outflow, timely alerts, thematic concentration, and industry concentration. These are the value additions that you should get as a client and you have to insist on getting these features while choosing the Demat account provider.