What is a Demat account?
A Demat account enables you to electronically hold your securities such as stocks and bonds. There are two depositories in India that provide such services; Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). It is similar to a bank account but a Demat account is used to store securities in electronic form. When you place a buy / sell order for a security, it gets automatically credited/debited to/from your Demat account, given that the basic requirements are fulfilled. This allows you to trade without needing to physically transfer share certificates as it was done before the introduction of the Demat account. It expedites transactions and reduces costs.
Benefits of Demat account
- Security of shares
If the proof is all just paper, the chances of it being misplaced increases. As a result, storing our shares in a demat account is thought to be a better and safer option.
- Holding of securities made easy
While trading, you may have to deal with a large number of physical documents. Maintaining all of the records would be a time-consuming task. Another responsibility is to keep track of their performance. All of your efforts, however, will be saved once you switch to demat accounts. All of your documents, as well as all of your investments, are kept securely.
Anything that makes life easier and less stressful is not always expensive. When people learn about the benefits of a service, the next thing they worry about is the cost of obtaining it. Physical securities cost far more than was originally estimated, both financially and mentally. Demat service alleviates all pain in exchange for a nominal fee.
- Timely transactions
Demat accounts, as opposed to actual certificates, enable for the speedy and secure transfer of shares. As the Trades are executed, the shares immediately get credited to your account.
Opening a demat account
You must first open a Demat account in order to invest in the stock market. There are only two depositories that provide demant services in India: NSDL, CDSL.
After selecting a DP, fill the account opening form.
Submit all the required documents.
After you’ve signed all of the forms and agreed on the terms and conditions with the DP.
After the verification is done, you will receive a Account number / ID.
Documents required for opening a trading account
The necessary documentation is listed below.
- Proof of Identity (POI)
- Proof of Address (POA)
Bank account statement
Utility bill like Electricity or Water bill
- Proof of Bank Account