Open Demat Account

The Indian stock market has matured significantly over the years with the entry of lakhs of retail traders as it become so easy to open a Demat account. It offers exposure to a range of companies across various sectors. From high growth technology behemoths to defensive healthcare giants to exciting new public companies, there are a host of opportunities to choose from. An increasing number of Indians are drawn to trading and investing in the stock markets, with the aim of making the most of these opportunities.

There was a time when investing in the Indian stock market was an ordeal, as it involved placing orders with your broker and holding shares in their physical form. This was not only time consuming, but also posed the risk of fraud and forgery. Thanks to rapid digitalisation in India, buying and selling stocks has become as easy as ordering food online. You can access Indian and foreign stocks anytime, in a safe way, right from your mobile phone. For this, all you need to do is to open a demat account.

What is a Demat Account?

Demat is the short form of dematerialisation, which means is the process of converting physical securities into a digital format. A demat account allows you to buy, hold and sell securities in a safe and convenient way. After opening a Demat account, you can access shares, bonds, mutual funds, exchange traded funds (ETFs), derivatives, and commodities. Moreover, all your investments can be maintained and managed from a single place.

Why is Opening a Demat Account Important?

Opening a Demat account  online is simple and fast. It makes trading safer, quicker, and more convenient. There are several benefits of opening a demat account:

  • It offers a secure way of holding shares and securities digitally.
  • It eliminates the risk of theft, robbery, or damage to physical documents of asset ownership.
  • It facilitates the quick transfer of stocks and other assets.
  • It streamlines the process of trading by eliminating tedious paperwork.
  • You can make quick and informed decisions regarding your investments.
  • Lower cost of trading and investing, without the expenses of handling charges.
  • Significantly reduces the efforts to maintain a record and keep track of all your assets.
  • Convenient nomination, so that your next of kin can easily inherit your portfolio.
  • Bonus issues and stock splits get reflected automatically in your account. 

Understanding Depositories and Depository Participants

Before opening a Demat account, you need to decide the Depository. In India, there are two depositories – National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Both allow you to hold your securities in electronic form. The only difference is that NSDL trades in NSE while CDSL in BSE. While NSDL has National Stock Exchange (NSE) as the primary operating market, CDSL’s primary market is the Bombay Stock Exchange (BSE).

Both these are central authorities that offer trading services through a Depository Participant. A Depository Participant (DP) is where you open the demat account. It can be a bank or NBFC (non-banking financial company). A DP maintains the balance of your account and sends you updates regarding its status. It is best to choose the Depository Participant carefully, as a leading bank in India may offer you several benefits. This is covered later in this article.

Types of Demat Accounts

There are three types of Demat accounts in India, based on the investor’s place of residence:

 1. Regular Demat Account: This account is open for resident citizens of India.

 2. Repatriable Demat Account: This type of account is opened for non-resident Indians (NRIs). It allows accountholders to trade in the Indian markets from anywhere in the world. It allows money to be transferred  abroad and needs to be linked with an NRE account, the savings account for NRIs, to park their foreign earnings.

 3. Non-Repatriable Demat Account: This is also for NRIs but does not allow fund transfers outside the country. It is linked with NRO accounts. NRO is the savings account for NRIs to maintain their earnings from  India.

To trade in India, NRIs must follow the trading regulations of the country they are residing. The account is opened only if it complies with the trading regulations of both nations.

Benefits of Digital Trading

When physical documents were used for trading, very few instruments were available and there is lack of transparency and awareness of the stock markets. Today, there are many instruments and their derivatives to choose from as well as guidance to make the right decision according to your financial goals. The popularity of Demat accounts has been driven by the many benefits they offer.

  1. Paperless Processing: You can now open Demat accounts  online in just a few steps within 10 to 15 minutes. You can download the mobile app of a leading Indian bank, register, complete your online KYC and gain access to a wide range of assets. There are no charges for opening a demat account.
  2. User-Friendly Interface: You can choose a platform that is easy to use. It may be sensitive to trader experience levels. From beginners to experts, anyone can easily access markets online for trading and investing.
  3. Trading Guidance: There are many websites that provide education about trading as well as long- and short-term investing. The internet is an ocean of information that you can filter based on your favourite assets and financial goals. It is a good idea to understand the basics and know the risks involved.
  4. Demo Account: You can open a demo account and practise trading with virtual money. This way, you can become familiar with the markets and the trading platform without putting in your hard-earned money right from day one. This gives you the flexibility to experiment and make mistakes. Once you gain confidence, you can open a live account and allocate the money according to your affordability.
  5. Convenience: You can open the account and begin trading or investing right from the convenience of your home. Since the account is online, you can make decisions even while you’re on the go.
  6. Wider Access: Digitisation has allowed people to access shares, currencies, commodities, derivatives, ETFs, bonds, and more right at their fingertips. You don’t need to limit yourself to the Indian markets. With a Demat account, you can even trade stocks of Apple, Microsoft, or another favourite foreign company.

Features and Workings of a Demat Account

Let’s have a deeper look at how a Demat account works:

Convenient Dematerialisation and Re-materialisation: If you already known physical shares, you can easily dematerialise them by submitting the physical certificate. The shares will be allocated to you in an electronic form, visible in your Demat account portfolio. Once dematerialised, you don’t need to hold physical share certificates.

 Ease of Transfer: You can easily buy and sell shares or securities online. You need to fill out a form called the delivery instruction slip (DIS) with the details of the asset as well as the recipient. With the elimination of paperwork, DIS rejection rates have drastically declined. So, there is one less thing to worry about for applicants, as AI-based checks identify most problems and highlight them even before you submit the online application to open a Demat account.

 Loan Against Securities: Did you know you can use your securities as collateral against loans? Since not all financial institutions issue loans against securities, it’s a good idea to do some research and identify a top bank that offers this facility. This allows you access to funds without having to liquidate your portfolio.

 Freezing an Account: It is a facility that allows you to make your account dormant for a certain period while your assets remain there safely. It is useful when you want to take a break from trading and investing.

 Multiple Access Options: You can link the same account on your smartphone and computer, so that you can access it on the device of your choice anytime and from anywhere.

 E-Transfer Facility: An online trading account makes trading very convenient and super quick. This offers you the flexibility to take advantage of smaller price movements more often to improve your returns. It also removes the risks involved in the transfer of physical slips.

 Company Benefits: If you invest in a company that offers dividends or interest, these are automatically added to your Demat account. Additionally, all corporate actions, such as bonuses and stock splits, are applied automatically to your holdings. You receive a notification about the same. No need to follow every single company and track its every move.


How to Use a Demat account?

If you have opened a Demat account, here are the basics of using it:

  • Your Demat account may come with an integrated trading account. The Demat holds the securities, while the trading account is used to buy or sell them.
  • Your Demat account has to be linked with a savings or current account to fund your trading account to carry out trade.

To trade, you can place a buy or sell request on the trading account.

  1. Buy Request: Placing a buy request requires capital in your trading account. You can place a buy request from the web or mobile application. The security you buy is reflected in your Demat account within 2 days of order execution.
  2. Sell Request: When you place a sell request and the order gets fulfilled, the trade is recorded in your Demat account statement, and the sold security is removed from your portfolio within 2 days of order execution.

How to Choose a DP?

Demat account features have evolved over the years. It’s a good idea to choose a depository that supports seamless, effortless, and convenient trading and long-term investment benefits. Here are a few things to consider, so that you have the best experience:

  1. Smart and Fast Trading Facilities: The foundation of a smart trade is informed decision making and timely order placement. Features such as excel-based trading enable you to stream live feed on an excel sheet, allowing you to directly apply a formula and promptly analyse the data.
  2. UPI-Enabled IPO Participation: This spells great convenience, safety, and speed. All you need to do is select the IPO you’d like to participate in and choose the digital payments option. You completely bypass the whole process of transferring funds from savings to a trading account and then another transfer to buy the stake in the IPO.
  3. Lending and Borrowing Stocks: This feature is great for investors with stocks lying idle in their portfolio. You can earn some extra money with the guarantee of NSCCL.
  4. Pledge Your Mutual Funds and Shares: If you do not have enough funds, you can pledge your shares or mutual funds to seize a trading opportunity. This feature gives traders easy access to the options and futures market.
  5. Good till Date: An intelligent facility that informs the trader about how long a trade can be extended. It enables the order to remain till the specified date or till it is fulfilled or cancelled.
  6. Clubbing it with stop loss and take profit orders can ensure that your losses are minimised and that your profits are locked in time.
  7. Risk Management: The most important aspect of trading is how well you manage the associated risks. The famous saying of a battle being won before it is fought implies that you combine a robust risk management strategy with your trading strategy. Choose a bank that simplifies risk management.
  8. Innovative Order-Placing Facilities: Not every trader wants to trade with bulk orders. If you are one of those, choose a platform that allows you to break your order into multiple smaller ones. It does not change the total outcome but does minimise the ‘cost of carry’ for positions left open overnight.

Other interesting order types to smoothen your trading experience are:

  • Basket order: When you can place multiple orders on the same scrip/stock, it is known as a basket order. It saves a lot of time that would otherwise have been lost in placing orders individually on every asset.
  • Bracket order: Placing orders with stop loss, track profit and trailing stops ensures that downside risks remain under control.
  • Off-market order: It is a fantastic feature that lets you place an order in off hours. It is executed when the market is active again. You can also place a limit price within the limits of the range stipulated by the exchange and never miss an opportunity.
  • Smart order routing: This facility helps you discover the best prices. Smart order routing helps to avoid errors and saves time and efforts that go in manually comparing prices.

Advanced Analytical Tools: Decision making requires tracking the market and getting insights deeper than the surface to accurately time the trade. Analytic tools such as heatmaps, decline-ratio charts, and sentiment analysis help traders track and analyse the markets better. In addition, portfolio trading insights give an overview of the portfolio capital gains that help traders to gauge their risk appetite and adjust future goals.

Easy Customisations: Top up your trading platform with some customisations for your dashboard and your charts with the help of code-free tools. Add on some peer comparison and broker consensus and strengthen your trading decisions by applying them on charts with state-of-the-art trading tools.

24x7 Assistance: This is a feature we look for in any service we use. How can one do without round-the-clock customer service? There are markets open 24 hours and with facilities like off-market orders, you might need guidance to act before an opportunity goes away. Your DP must be available anytime you need them.


Preparing to Open a Demat Account?

If you have chosen your depository participant, be ready with the following before filling out the Demat account opening form:

  1. Chose the account you wish to link: You need to fund your trading account to trade. Make sure you have chosen the account and fill in the details correctly while submitting the application form. You can also choose a DP with a facility to open a 3-in-1 savings, Demat and trading account.
  2. Fill in your details correctly: A very common problem while filling out the form is incorrect details. The good part is that online forms do not let you submit an incomplete or inconsistent form. However, it cannot identify if some details are completely incorrect. To avoid application rejection, collate your details and fill them up very carefully.
  3. File your nomination: For the safety of your assets, a nominee is critical to make the transfer easier in the future. Fill in the details correctly and make your nominee aware of your Demat account information they can use in the event of a mishap.
  4. Know the charges: Different depository partners have specific fees for maintaining, facilitating trade, and securely holding your assets. You can choose an account that suits your financial strategy.

Demat accounts are charged on various factors such as account type, traded instruments, and facilities used. Here is a list of charges that may be applied by your DP.

  • Account Opening Fee: It is a one-time fee paid when you open the account. It includes fees for all the Demat account opening formalities and issuing the Demat account number to the applicant. You can choose a bank that allows you to open a free Demat account.
  • Annual Maintenance Charges: Irrespective of the number of transactions made or the value of assets held in the account, your DP may charge some annual account maintenance fee to keep your account running and provide requisite customer support, trading, and other services.
  • Dematerialisation Charges: If you own any physical shares that you hand over to the DP to dematerialise, you may have to pay a fee to convert them into electronic records.
  • Re-materialisation Fee: Converting electronic records to physical certificates of ownership generally comes with higher charges than those for materialisation or transfer of assets.
  • Conversion of Mutual Fund Units: Some DPs charges a flat fee for the conversion of a mutual fund unit into the physical form.
  • De-statementisation Fee: This fee is applicable on a per-unit basis for converting physical mutual funds into electronic records.
  • Re-statementisation Fee: Represented by a Statement of Account (SOA), this fee is for converting mutual funds into their physical form from the electronic one in the Demat account.
  • Redemption: Returning the mutual funds to the fund house has a flat fee per redemption request.
  • Postal Charges: In case you wish to receive account statements physically, you may need to bear the courier charges.
  • Account closure: Closing a Demat account does not have any charges till you transfer your assets into another account. If the account is closed in the middle of the year, the maintenance charges are also partially applicable, and the rest is waived off.

It is a good idea to find out all the charges involved to make an informed decision.

The Procedure to Open a Demat Account

Demat account opening is similar to opening a regular bank account, except that the former needs a valid PAN card.

If you wish to apply online, you can access the application form for opening a Demat account and complete the KYC right from the comfort of your home.

The following KYC details are needed for Demat account opening:

  • Applicant Name - As on the ID Proof
  • Verifiable Address – Any proof of identity such as voter id, aadhaar card, passport, driving license, or last 3 months' bank account statement.
  • Valid PAN Number
  • Active Mobile Number
  • Active Email Address
  • Range of Income – Last 6 months' account statement to verify account holders' income and tax details.

A savings account number can be linked with the Demat account. This is the account you will use to fund your trading account. For this, you need a cancelled cheque, account statement record, or a copy of the passbook as proof of the associated account.

After submitting the application form, you will receive an email on your registered email ID or SMS on your registered mobile number for verification of your details.

Once all your details are verified, your will be informed of the Demat account opening. The bank will now share the following details with you:

  1. DP ID: The Id of the depository participant with which you have opened the account.
  2. Demat Account Number: This is also known as Beneficiary ID. It is a 16-digit number of your Demat account. If your depository is NSDL, your Demat account number will start with two alphabets and followed by 14 digits. CSDL applicants will receive a 16-digit number with the first eight digits identifying the DP and the next eight the Demat account.
  3. POA Number: The power of attorney number is the number used when a trade is initiated with the account. A Demat account may have multiple attorneys (when multiple parties open a Demat account together) and each will have a unique number to exercise their rights on the Demat account.

A Demat account opens the door for a plethora of opportunities that you can seize for wealth creation.

Demat Account Opening  FAQs

Who can open a Demat account?

Any valid Indian PAN card holder, residing in the country or an organisation with a PAN number can open a Demat account with any of the depositories. NRIs need to go through the laws of their country of residency and ensure that their Demat account with an Indian depository is not in violation of the investment and trading laws of that nations.

What is the minimum amount required to open a Demat account?

There is no minimum balance in capital or securities to be maintained in a Demat account.

What is a Demat account?

A dematerialisation account holds all the securities owned by the accountholder in electronic form. It facilitates the trading of shares, bonds, mutual funds, and derivatives. A digital facility for holding and managing securities simplifies the entire process.               

Why is a Demat account necessary?

A Demat account is a prerequisite for equity delivery in India. It holds the securities such as bonds, mutual funds, and shares in digital form. Though physical documents (mostly of long-running organisations) are available today, their transfer or trade is possible only after they are de-materialised. That means converted to an electronic form. Also, you must provide a Demat account while applying for an IPO, as the allotted shares will be transferred to the Demat account.

Do I need a Demat account to gift stocks or securities to my children/anyone?

Yes, you do, and your beneficiary will also need to open a Demat account. Transfer of stocks and securities can only be carried out via a Demat account. That’s where it is ‘kept.’ Therefore, both sending and receiving parties must have a Demat account.                       

Can a Demat account be opened in the name of a minor?

Yes, a Demat account can be opened in the name of minors provided they hold a PAN card in their name. Till the minor attains the age of 18 years, a guardian is associated with them to manage the account. The Pan card of the guardian is also mandatory.

Is it necessary to link a trading account with a Demat account?

Generally, no. You can keep your assets secured in the Demat account. Although, Demat accounts come integrated with trading accounts, if not you can invest via a Demat account, but you would need a trading account to trade.

Are Demat accounts safe?

Yes, Demat accounts are governed by one of the two depositories – NSDL and CDSL. They send alerts and notifications of all performed transactions. The online mode prevents risks of forgery and theft. However, they only store your assets, and trading and associated risks are to be managed by the account holders.

After becoming a major, the account control can be completely transferred to them, barring the guardian from any further activities on the account.

Are joint Demat accounts allowed?

Indeed, you can open a Demat account with any other Individual.

Can I open multiple Demat accounts?

You cannot have more than one Demat account with one DP. However, you can open one for yourself and another as a joint account with someone else to have multiple accounts.

How can I close the Demat account?

To close the demat account you need to submit an account closure request approved by all account holders. Before closing pass all the account holdings to another account and clear all outstanding dematerialisation requests.

What all instruments can be traded with a Demat account?

Share, debentures, government funds, mutual funds, options, futures, CFDs, forex, treasuries, securities, and commodities, can be traded via a Demat account associated with a trading account.

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