An increasing number of individuals are looking to venture into business to supplement their income or establish an alternative income stream. However, it is important to understand that opening a demat account acts as the initial step before entering the stock market.
What is a demat account?
Understanding what a demat account is acts as a fundamental prerequisite to grasp its functionality. The term “Demat” means dematerialization, a process in which physical securities are converted into electronic form. Through a demat account, traders can hold, transfer, and transact securities without the need for physical certificates. This transition has made trading a safer, faster and more efficient method of managing securities and executing trades.
Demat accounts are primarily used for investing in shares and securities electronically, improving accessibility for account holders by eliminating the need for physical share certificates.
Since the inception of demat accounts, investors and traders have experienced significant benefits, including reduced clearing times, mitigation of fraud cases, reduced brokerage rates and a remarkable increase in trading volume, especially in the stock market.
How does a demat account work?
In India, demat accounts simplify share trading by holding shares in electronic form. They facilitate easy access to shares and securities by converting physical share certificates to electronic format. Opening a demat account attracts certain charges from stockbrokers for managing the account.
Similar to bank accounts, demat accounts require a link with a merchant account for optimal functionality. When you place a “buy” order for a company’s stock through your trading platform, your depository participant forwards the order to the stock exchange. The exchange matches your order with a corresponding “sell” request from another trader or investor. Once matched, the exchange sends the order to a control house, settling the trade. At the end of the trading day, the shares you bought are credited to your demat account, while the seller’s demat account is debited for the shares sold.
Key questions answered
Can one person open more than one demat account?
Yes. You can open more than one account with the same Depository Participant (DP). There is no restriction on the number of accounts you can open with DP.
Is there a minimum balance in demat account?
No. The deposit did not prescribe any minimum balance. You can have zero balance in your demat account.
Is providing bank account details at the time of account opening mandatory?
It is mandatory to provide bank account details while opening a demat account. These details are essential for communication with issuing companies or Registrars and Transfer Agents (RTAs) to ensure direct credit of any amount due to your bank account. This may include dividends, interest, maturity payments or redemption amounts. Therefore, it is advisable to provide accurate information about your active bank account in the account opening form.
What is personal verification?
As per SEBI guidelines, verifying the identity of the applicant is a mandatory requirement during the account opening process. This verification is done by the staff of the Depository Participant by comparing the photograph affixed on the account opening form with that seen on the PAN card of the individual seeking to open the account. In the case of joint account holders, “personal verification” is required for all holders.
At what frequency should I get my demat account?
NSDL provides a consolidated account statement to you at monthly intervals (quarterly for BSDA holders) if there are transactions in the given month (quarter). If there is no transaction in the account, or if the balance has become Nil during the year, the statement is sent annually to such customers.
What should I do if there is any discrepancy in my account statement?
In case of any discrepancy in the account management, you should immediately contact your DP. If the difference cannot be resolved at the DP level, you should approach NSDL.
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Published: 04 Mar 2024, 14:28 IST