The rise and fall of stock market excites everyone to enter and start trading in the stock market. The very first step of entering the world of the stock market is to open a Demat account. So this video will be “All about the Demat Account”. Now what is a Demat Account, Demat account is a type of account through which the shares of the companies are transacted from one account to the other. Before 1997, the shares were held in the physical form. The share certificates were sent to the investors by the companies. After 1997, the share certificates were converted into an electric form and kept in the Demat account. Now, the benefit of this dematerialization is, there is no tension of shares to be lost, stolen etc. So now we understand that a A demat account is an account which holds the securities in a dematerialized form. It is just like a bank account which holds money. They are basically the storehouse for securities. Now here we need to note that that demat account is different from trading account. When we go for shopping we put a certain amount of cash say Rs. 1000 in our wallet. Suppose we want to buy a shirt, so we see the price of it and tell the shopkeeper to bill the shirt. Then we take out 1000 bucks from the wallet and pay it to the shopkeeper which completes the transaction. The demat account performs the function of the wallet from where we are keeping money and paying for the shirt whereas when we are giving orders to buy the shirt, then we are acting as the trading account. So when it comes to investing in stock market, it is necessary to open Demat, trading and banking accounts. A trader can buy and sell through this account. But before opening these accounts one should know about them and understand the differences between these accounts:
What is a Trading Account?
All the trading activities are conducted through a trading account. It acts as a middleman between demat and bank account.
When we buy or sell the share then that amount is transferred from the bank account to trading account.
For example, if we want to buy shares worth of 1 lakh, then we need to transfer that amount from our bank account to our trading account to place the buy order.
Bank account as we all know is where our money is deposited and withdrawn securely.
Let us now differentiate between these accounts:
Let us understand this point by using an example:
Suppose if we want to buy 100 shares of say XYZ Company of Rs. 10 each. First, of all, we need to transfer Rs 1000 from our bank account into our trading account. When we place a buy order to buy 100 shares, then Rs. 1000 (100* 10) is debited and after two working days, the shares are credited in our Demat account.
After a few days, we want to sell these shares say at Rs. 12. After placing a sell order, Rs. 1200 (100* 12) gets credited in our trading account and shares get debited from the Demat account.
When we are buying shares using the trading account, money gets transferred and debited from our bank account and shares are stored in our Demat account.
The trading account acts as the middleman between Demat and bank account whereas Demat account is like a bank account, instead of money, shares are stored.
Demat account is used to keep our stocks in dematerialised form and trading account is used to buy and sell stocks.
Therefore, first we need to deposit the money to our bank account. To order to buy the shares we need to transfer the funds from the bank account to the trading account. After purchases the shares from our trading account, share is digitally deposited in our demat account.
Now let us discuss the process of opening a demat account:
Here are steps to open a Demat account:
- Identifying and choosing a Depository Participant (DP):
There are two Depository Participants in India, National Securities Depositories Ltd. (NSDL) and Central Securities Depositories Ltd (CSDL) who are regulated by SEBI.
These depositories hold our securities in the demat form and helps in the smooth transaction of the securities from one demat account to the other.
A broker has to be registered with either of the DPs either NSDL or CSDL.
Therefore, a trader first has to choose with which DP, he wants to open account with and then choose the broker according to the brokerage charges.
- Documents required for opening demat account:
To open a demat account, one requires the following documents:
- PAN card
- Address and identity proof like voter’s id, passport electricity bill, adhar etc.
- Form given by the broker
And any other documents asked by the broker.
- Opening the account digitally:
These days one can open demat account online by sitting at the home only. You just need to fill up details of your pan card, date of birth and aadhar number or just upload the following documents as mentioned by the stock broker’s website which will be verified by the stock broker. You also need to enter bank details for the transactions.
After filling up the details, review the form which can be signed digitally and then click the submit button.
- Opening the account physically:
If you do not have the access to internet, you can go to the nearest branch of the stock brokerage firm and there submit the documents.
- Signing the agreement with DP:
Other than the above documents you also need to sign and submit DP agreement.
This is a document which contains rights and duties of the holder of the Demat account.
One should read this document very carefully.
- Setting up the demat account:
When you have submitted all the above documents along with the DP agreement, your demat account is ready to be opened. The broker will ask you for the nomination details.
After signing up you will get your 16 digit demat account.
The share which you buy will be credited to your demat account and when you sell the shares, it will be debited from your account.
An individual can have 2-3 demat accounts with different stock brokers. Before submitting the documents make sure that all the documents are self-attested. Details entered in the form should match with the details in the address proof identify. If you hold share in the physical form it can be converted into dematerialised form by just filling up the form from the broker.
Thank you for watching the video!
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