Demat has created life a lot simpler for investors in the stock market. It has greatly withstood the conflicts of trading in manual share certificates. Disputes like copy certificates, fraud certificates, failure in transit, bad delivery, and mutilation of share receipts are a thing of history. Still, Demate account is just an electronic ownership statement.
What is a Demat account?
Demat is the short form of “Dematerialization,” which implies converting manual shares and safeties into electronic aspects. Demat Accounts are compelled to carry shares electronically rather than on paper. These types of accounts maintain the share’s safety and thereby avoid the failure of shares or dangers associated with forgery. It is a simple procedure to exchange securities shortly. In the stock market, a Demat account and a trading account are crucial to carrying out the trading of shares.
To dematerialize shares, demat accounts are employed. It is typically utilised for investing in shares and assets that are more easily accessible in electronic form when done through a Demat account. These accounts are specifically designed to convert share certificates from physical to electronic format, hence increasing account holders’ accessibility.
Essential Documents Required for Opening a Demat Account
Making your first investment involves a number of stages that may seem difficult to a novice investor. Of course, opening a Demat account is the most important step. However, producing and submitting the necessary documentation required at the time of opening the Demat account is required to open a Demat account.
The documents required –
- Identity documents featuring photos like your driver’s licence, PAN card, voter ID card, and Aadhaar card.
- Your driver’s licence, passport, landline phone bill, energy bill, apartment maintenance bill (if applicable), copy insurance, gas bill, and other documents serving as proof of residence are acceptable.
- Your evidence of a bank account will be the passbook or account statement from your bank (must be no more than three months old).
You can quickly open a Demat account once you have gathered all the necessary paperwork. These papers are a crucial component of the procedures for opening a Demat account online. Therefore, before visiting a website to open the Demat account, it is preferable that you have scanned copies of all the necessary papers. Additionally, before attaching the necessary documents to the Demat account opening form, make sure the text and images are clear.
How to open a Demat Account:
- Choose a Depository Participant (DP), a bank, financial institution, or broker authorised to open Demat Accounts on your behalf. The ideal scenario would be for a DP to be based on the brokerage fees, annual fees, and leverage offered.
- Deliver a properly completed account opening form and a KYC form. You must also include copies of the following documents.
- PAN Card
- Residence Proof
- ID proof
- Passport-size Photographs
Keep all of the original copies on hand for verification purposes. For dividend bank information, you will also need to provide a cancelled check.
- You will next be required to sign a document outlining all the rights, obligations, and requirements related to owning a Demat Account. Please carefully read them, and don’t be afraid to ask any questions you may have. A copy of this will be sent to you when it is signed by an authorised person and submitted to the DP.
- You will get a special Client ID when the DP opens the account. This will enable you to access your Demat Account online along with other information.
- Additionally, the DP will provide you with instruction slips that you can use for depository services like transfer, purchase, etc. Note that a Demat Account does not require any ‘minimum balance’ of shares or financial securities to be held in it. Also, you can hold more than one Demat Account linked to a single PAN; however, not with the same DP.
How to open a Demat Account online:
You can also apply online to open a Demat Account with any DP. So, with just a few clicks, you may quickly and conveniently open a Demat Account online from your home or workplace convenience.
- Visit the website of your chosen DP.
- Select the “open Demat Account” tab, then enter the information requested below.
- Email address
- Mobile Number
- Your one-time password (OTP) will be sent
In order to contact you to complete the formalities mentioned above and opening a Demat Account, the DP will send you a correspondence.
Demat Account details
The following information must be provided to you by your Demat service provider:
- DP ID
- The number for a Demat Account or Beneficiary
- Number of the Power of Attorney (POA)
These are especially beneficial if you intend to apply for an IPO (IPO).
Types of Charges Associated With Opening a Demat Account:
The stockbrokers charge a variety of fees for their assistance in opening Demat accounts. The fee changes depending on the stockbroker even though the charges have the same title. When compared to other stockbrokers, IIFL, for instance, charges a comparatively modest price for opening Demat accounts. Here is a quick breakdown of all the different sorts of fees you need to be aware of to understand how to register a Demat account online:
- Account Opening Cost – When a Demat account is opened, the stockbroker will charge a one-time fee known as the account opening fee. The price is one-time-only and non-recurring during the initial stages.
- Rematerialization of share certificates – Rematerialization is the process of turning electronic records of shares into tangible ownership documents. Similar to dematerialization, a price is levied for the rematerialisation as well.
- Dematerialization of share certificates – It is the process of transforming physical share certificates into electronic records; there is a price associated with this service.
- Mutual fund unit conversion – Depository participants often charge a fee for converting physically held mutual fund units into a dematerialized form. Typically, the conversion of mutual fund units is subject to a flat cost from the depository member.
- Annual maintenance charges – No of how many transactions you conduct each year, there is an annual fee for maintaining your Demat account called the “Annual Maintenance Charges.”
- Redemption – Redeeming your mutual fund units entails sending them back to the fund house. For each redemption request, most depository participants impose a flat cost.
- Destatementization – Destatementization is the process of transferring mutual fund units from their physical form to a dematerialized electronic form.
- Units of mutual funds that have been converted into a statement of account (restatementisation) – Restatementization, which is represented by a Statement of Account (SOA), which involves a nominal cost, is the process of converting mutual fund units kept in a Demat account into their physical counterparts.
- Postal Fees: Depository Participants charge Postal Fees to deliver papers and statements of account to you physically.
Benefits of Opening a Demat Account With IIFL Securities
- Guards Your Assets Against Loss, Theft, and Damage
When you open a Demat account online, your holdings are held in a dematerialized form. This means that they are shielded against harm brought on by wear and tear, loss, or theft.
- Loan Facility
The ability to use the securities housed in your online Demat account as collateral for loans from various banks is a significant benefit of having a Demat account.
- Protection from Forgery, Fraud, and Imitation
Prior to the development of online Demat accounts, it was frequent for physical shares to be faked or for owners to be impersonated by using fake paperwork. One major benefit of Demat accounts is that no one can impersonate you on the exchanges or fake your holdings.
- Keep a variety of instruments in one account.
You can invest in commodities, Futures & Options, Equity Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), and Stocks with your online Demat account (F&O). With the aid of your online Demat account, you can also monitor and compare the performance of all of your investments on a single screen.
- Quicker closure
You can purchase or sell shares with only the press of a button if you have a Demat account. A Demat account has many advantages, including hassle-free transactions and quick settlement. This implies that both ownership transfer and payment clearing are expedited. Settlement used to take a long time before Demat, but now that it has, all settlements in the Indian stock markets are made 2 days after the transaction date, or T+2. Compared to the era of paper trade, this is a great advancement. Additionally, lowering the possibility of fraud, this quicker settlement makes trading safer.
What are the precautions associated with a Demat Account?
- The demat path starts with dematerializing the shares if an individual is still carrying them in the physical aspect. They should make it a step to document the unique numbers of safeties that are delivered along with the folio number. This folio number is of share certificates. It is, however, better if they save a photocopy of the certificate with them. They should ensure that their name on certificates fits with that in the Demat account. This should be in the same order just like that of joint holders. Furthermore, they should keep the acknowledgment of the DRF, which is the Demat Requisition Form which is fulfilled to the DP safely until they receive the demat credit.
- In case any individual notices any unauthorised debit or credit, they should first inform their DP and then escalate it to NSDL/CDSL. They shouldn’t wait for the DP to deliver the statement. First, they should register for an online Demat; after that, they can perceive and check their statements during rehearsal times.
- When they sell shares, an individual is required to fill up the DIS or the debit instruction slip. They should remember to illustrate facts like ISIN and various securities precisely. In online trading, the broker may inquire them for a power of attorney to facilitate the Demat procedure. This is legal and authorised under the laws in the interests of clarity. While that is useful, there is no bonus for them to approve that agreement, and they can opt to ratify DIS physically.
- While filling out the DIS, they should resist misspellings, overwriting, and cancellations of the name and amount of securities. To avoid these, an individual just double-checks their numbers, figures, and names, which are entered, and constantly cross out the area that they do utilise to prevent any misconduct at a later phase.
- Individuals should insist that the DIS numbers are pre-printed along with their account number; the client ID is also pre-stamped on each DIS page. They should never approve or utilise loose leaves from their DP. Several companies are inclined to indicate that a person should vacate signed DIS slips with their broker or sub-broker. But this is something the person should constantly prevent. Above all, they should keep their DIS booklet in a secure and stable area, especially under lock and key, where only they have a permit to it.
- A person should never spend any of the demat payments in cash. They should contend that all payments will be only spent by online bank transfer or cheque, irrespective of how small the fee may be. This is in their interest as it will prevent any mishandling of cash. Demat and SEBI laws deter them from reimbursing any demat-related payments by cash.
- They can only negotiate those shares they already have transmitted in their demat and any errors must not obstruct these shares. They should not sell more shares than they have in their Demat account. While the broker will review their balance before enforcing in case of online transactions, the bonus is, however, on that individual.
- If they have to hand out a DIS, they mustn’t issue DIS from their wife’s accounts for their trades. Better still, they can accomplish an offline transaction from their wife’s DP account into his account and then hand out a DIS for these shares. Furthermore, they should avoid offering their shares to others. When they are touring, they avoid vacating signed DIS slips with their family members to take care of crises. Any such liberty can result in enormous ravage to the person financially.
- The person should never leave their Demat account idle for too long. Suppose they are going to other countries for a long period or they’re not going to regulate their Demat account for obedience reasons. In that case, they can utilise the capacity to freeze the Demat account. In this situation, they are not transacting often and can use the freezing facility given for their Demat account. This will assure that there can be no credits and debits to their Demat account unless they provide a message to de-freeze the account. This will simply avert mishandling of their Demat account, but they are also shutting the path for any feasible crime in their account.
- SEBI authorised offline shares transactions without reimbursing capital profits in selected situations like the unification of Demat accounts, within the household, for bequeathing shares, etc. Unless it is a serious situation, they should not accomplish the offline transfer of shares to another Demat account.