In simple words, a demat account is the account that holds shares and securities in electronic format. In India, it is mandatory for any investor to have a demat account if he is into stock trading. They can also be used for saving SIPs and Mutual Funds. Read on to learn more…
Words: Sangeeta S
For those who use demat accounts and do not know what it means – a ‘Dematerialised’ or ‘Demat’ account makes managing your finances simpler as all investments you make in shares, bonds, mutual funds, securities etc. are in one place and in electronic format. In India, the service is provided only by two depositories namely the National Securities Depositories Limited (NSDL) and the Central
Depository Services Limited (CDSL), and can be availed by the Bank you use as your trading account. What makes it even simpler is that you can access them from any part of the world and they are easy to manage too.
Though it is not mandatory to have a demat account for SIPs or Mutual Funds, having them all in one place
definitely helps as it is widely accepted. Also, for online trading, it is essential and mandated to have a demat account. To invest in online trading, along with a demat account you will also need a trading account. It is through a trading account that you buy or sell shares, while a demat account is like a bank where you deposit your shares and sold shares are taken from. Some banks offer the facility of saving, demat as well as trading at one place.
Opening a trading account is simple; it can be done online through a broker. It is important that you select a good broker because expertise is crucial in stock market as rates change within minutes. It is a good idea to compare brokerage rates but it is advisable to go for brokers who provide good service rather than ones who charge you less. Once you decide on the broker contact them, fill up the forms, submit the necessary KYC documents and get ready to start trading in the stock market. After verification of your application you will be given your trading account details.
So with your trading and demat account in place you can easily do your trading. Make sure that you link your trading and demat accounts so that you avoid providing demat account details every time you trade. Process is simple, place your order (buying or selling) through your trading account, the stock exchange will process and verify your order and then the shares will be either debited or deposited in your demat account.
Though for your other investments like mutual funds and SIPs you don’t need to mandatorily have a demat account but if you wish you can consolidate all your investments at one place in demat account. Mutual fund investments can be done without a demat account; all you need is proper documents for KYC.
Some Tips for efficiently managing your Demat Account
– It is important that you have understood the terms and conditions of the demat agreement before opening an account. Often people give power of attorney (POA) to their broker which he/she can misuse
– Read all clauses properly before you give any POA or other instructions to your broker
– Always keep your DIS in safe custody; every broker has to provide their client with a pre-numbered booklet
– Check that your DIS book is in a serial order; in case of any missing page get it changed
– DIS has to be filled every time a transaction is done; don’t give blank signed slips to your broker as it can be misused
– You can protect your account by using the freeze option
– Choose a good broker
– Don’t get carried away by advice given on whatsapp or Facebook; do your own study and invest
– Learn to time the stock market; don’t get carried away by short gains
– Review your portfolio at regular intervals
– Don’t allow your broker to trade; signing forms blindly and handing over to your agent may backfire
Some Quick Facts on Demat
Credits – Our expert Manoj Chaturvedi who has rich experience of banking having worked both in India and Europe during last 16 years. He is by qualification an MBA from XLRI, Jamshedpur and LLB from Faculty of Law, Delhi University.
A demat account helps in complete paperless operations. All your securities get converted to electronic form from physical form. You are free from the hassles of filling up forms and are also free from any risks like forgery, theft etc. All your investments like bonds, mutual funds, shares etc. can be consolidated into one single account.
Can a person have more than one demat account in his name?
Yes, a person can have more than one demat account in his name; there is no restriction on that. An investor can open more than one account in the same name with the same Depository Participant (DP) or different DPs provided all KYC documents are submitted.
Can I change to another depository?
Yes, it is possible. If you have a demat account with a particular depository and for some reasons you wish to change, you will need to fill the Delivery Instruction Slip (DIS) book and submit to your broker.
Can a demat account holder authorize another person to operate the same?
Yes, a demat account holder can authorize any person to operate his/her account by executing a power of attorney (POA) to this effect. In case, any demat account holder wants to re-operate the account on his own, it can be done after having revoked the POA in writing.
Can I transfer shares to another demat account?
Yes, it is very much possible to transfer shares between demat accounts. The duly filled slip has to be submitted to the concerned DP and the transfer is done by NSDL or CDSL after receiving the document forwarded by the DP on behalf of the client. But the shares transferred from and the shares transferred to should fall under the same depositary i.e NSDL to NSDL and CDSL to CDSL.
I have some non-demat shares. How do I transfer them to demat account?
Open a demat account in the name of the person who has shares in the physical form and then ask the broker to demat the physical shares.
Can I have a joint trading account?
A trading account is always a single account that means there cannot be a second holder for a trading account, though you can have a nominee for a trading account. You can have demat account with a second holder and link multiple demat accounts to a single trading account.
Can I have multiple trading accounts?
Yes, you can have multiple trading accounts though not with the same broker. Though a second trading account would give you different trading platforms but it will add to your account opening charges and you will also have the burden of keeping track of two accounts.
Is it mandatory to dematerialize the physical share certificates?
No, it is not mandatory to dematerialize the physical share certificates. But all features of demat now can be accessed on mobile banking and are easy to operate. Bonus / right shares easily get credited to these accounts and transaction cost is also lower than it used to be in physical forms.