A Demat Account is similar to a regular bank account. Your bank account manages your cash inflow and outflow and provides you with a bank statement, whereas your Demat Account manages the number of shares you have transacted. The Demat Account keeps track of your shares and sends you a statement.
- What is the total number of shares you have purchased and at what price?
- What is the total number of shares you have sold and at what price?
- The brokerage and transaction fees you paid as a result of the shares you bought or sold?
The Demat Account is the initial step in getting started in the stock market. How will you manage your shares until and unless you have this account?
Because all of this management can only be executed by the Demat account and not by the bank account, you will need to know where your purchased shares will be kept and how you will know the number and amount of shares you have with you.
As a result, a Demat account serves as a ticket for newcomers to the stock market as well as a manager for experienced investors.
The Advantages of Having a Demat Account
- Your shares will be held in a secure and centralized location.
- Transfers of your shares will be free of duty.
- It is possible to avoid fake deliveries or ones that are late.
- This technique has resulted in the abolition of theft instances.
- You can take advantage of the quickest and most secure financial transactions available.
- You can open a Demat account in joint names, just like you do with a bank account.
What is a Demat Account and how does it work?
The amount of stocks you have acquired or sold from or in the market is managed by your Demat Account. What is the mechanism behind it? Let’s look at what happens when a buy order is put. When you wish to acquire shares from the stock market, you must spend money. As a result, you must withdraw money from your bank account and deposit it into your trading account.
The stock exchanges receive the purchase order (NSE or BSE).
The stock exchange buys the shares on your behalf and deposits them into your Demat account.
Your sell order is placed on the stock exchange, and your order quotation is confirmed.
It will sell your securities after receiving confirmation, and the proceeds will be transferred or credited to your bank account.
Your Demat account will be debited by the number of shares that you have sold out.
How to open the Demat Account?
You must have the following prerequisites before you may open a Demat account. These are the following:
- Photos that are passport size.
- Your PAN card is your identification card.
- Your Aadhaar card, if you have one.
- The check has been canceled.
The photocopies of the preceding papers will be required to open the account, with the originals required for verification.
To open a Demat account, you must first complete the following steps:
- To open a Demat account, choose a Depository participant. Many stockbrokers offer this built-in service to depository participants as well. As a result, you can hire them as well.
- The list of DPs is published on the depositories’ websites: CDSL (Central Depository Services (India) Ltd and NSDL (National Securities Depository Limited) (National Securities Depository Ltd).
- To open an account, fill out the application form.
- Include all necessary documents in the package.
- The DP will hand you a circular outlining the agreement’s terms and restrictions. You must sign it after thoroughly reading it.
- A member of DP will cross-verify your identity and any information you provided on your application form during the process.
- Your DP will open a Demat Account for you after confirming your identity, and you will be given your account details, which include your client ID or account number. This will assist you in gaining access to your account information at all times.
- You must pay certain costs to the depository participants to keep your Demat account because it is solely their responsibility to look after your Demat account.
- Different DPs impose different costs, which also vary depending on the type of scheme you choose.
- To open the account, you do not need to have a minimum balance of shares in your Demat account.
What are Demat Fees and How Do I Calculate Them?
Investors must pay the fees charged by the stockbrokers’ Depository Participants for the services they receive. They are liable to compensate them for the following:
- The fee for establishing a Demat account. This will differ depending on the type of pick you make. If you wish to open an account with a discount stock broker, you will pay a lower fee than if you start an account with a full-service broker.
- Account opening, account maintenance, and trading assistance are all provided by full-service brokers. When you trade with discount brokers, you have access to only one trading platform, which is why it is so inexpensive.
- The SEBI has created a special account for those investors who are new to the stock market and wish to have a feel for it. They are not charged any fees through this account, up to a limit of Rs 50,000 (annually).
- Your securities will be dematerialized and rematerialized.
- Account upkeep on an annual basis
- Fees for transactions (only for sale transactions)