Basics Of Demat Account & Its Advantages

Demat is a form of an online portfolio that holds customers’ shares and other securities. It eliminates the need for physical share certificates to be held and traded. A Demat account shall be used to hold shares and securities in electronic format. These instruments can be used to create portfolios of bonds, ETFs, mutual funds and similar assets on the stock market.

Read this article below to understand the basics and advantages of having a demat account if you plan to open demat account.

How Does A Demat Account Work?

A Demat account has the same features as a savings account at a bank. Like saving money electronically in a savings account, an investor can keep securities in a depository participant’s (DP) demat account connected to the NSDL or CDSL. The Demat account must be credited when shares or other securities are bought. However, the account is debited when the shares and securities are sold.

Documents Required To Open A Demat Account

You need to have some important documents for the convenience and ease of opening a Demat account as mentioned below; 

1. Evidence of identity with a photo. For instance, an Aadhaar card, a PAN card, a voter card, a driver’s license, etc. 
2. Proof of residence: Registered lease agreement, driver’s licence, passport, landline phone bill, electricity bills, apartment maintenance charges, if applicable, photocopy insurance, gas and other utilities, etc.
3. Proof of bank account: The bank’s passbook or statement must be at least three months old. 
4. Proof of Income – Payslips or taxes.

Features Of Demat Account

You can use several useful features when you open an account with Demat.

• Share Transfer: To transfer shares, you must only send a duly signed copy of the Delivery Instructions Slip to Your Depositary Participant. 
• Loan guarantee: To obtain a loan from a financial institution, you can claim securities in your Demat account as collateral. 
• Temporary freeze: Your Demat account may be temporarily frozen for a specific period. This feature is available for a limited period when you have a certain number of shares in your account.
• Quick transfers: Benefits are sent quickly with the best demat accounts, including dividends, bonus shares, stock splits, interest, and refunds. 
• Speed e-facility: NSDL enables you to transmit instruction slips to your depository participant electronically. This is less demanding, yet it could speed up the entire procedure.

Advantages Of Demat Account

Several benefits can be enjoyed by investors who decide to open a Demat account. Here are a few of the first benefits that you can get.

1. The risk of damage, forgery, misappropriation or theft of physical shares is eliminated by the Demat accounts. 
2. An electronic system is even simpler and can be completed in a few hours. Some time-intensive operations have been eliminated, which has made the whole process easier and faster. 
3. If a person has an established net banking facility with the financial institution concerned, Demat accounts offer remote access benefits.
4. Investors may convert bank accounts into dematerialised accounts to facilitate electronic fund transfers. 
5. Customers who open an online Demat account can use a nomination facility. You can opt for a specific time limit to freeze your accounts if you have any particular piece of securities in your portfolio. 
6. It can help prevent undesired transactions from being entered into your Demat account.

Demat Account Charges

While investors can set up a free Demat account, certain charges are charged on such accounts for them to operate smoothly. Each brokerage firm, including banks, has its brokerage fees. Here’s a few of them;

1. Custodian Fees: 

Depository partners shall charge the custody fee on a yearly or one-time basis. The company pays the total amount directly to the depository (NDSL or CDSL). 

2. Demat and Remat charge the following fees: 

These expenses shall be charged at a percentage of the overall market value of shares purchased or sold to cover all digitisation and physical print costs of securities.

3. Annual Maintenance Charges: 

Nearly all firms charge a fee to the Demat accounts as a yearly maintenance charge. The calculation of a fee applicable to every investor is carried out by the depositaries following specific guidelines. As of June 1, 2019, SEBI has introduced an updated rate for the Basic Services Demat Account, or BSDA. In line with the revised guidelines, no annual maintenance fee will be charged to debt securities of up to INR 1,00,000, and a maximum charge of INR 100 can be levied on assets above INR 1,00,000 to INR 2,00,00.

Conclusion

Demat accounts are a major element in the equity market’s investments, as they represent one of the largest forms of investing on the stock market. However, several online platforms have recently provided the benefits of online trading without such accounts. To open a safe and secure demat account, choose a demat app like BlinkX trading app.

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