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Demat and Trading Accounts

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What is a demat account?

The shares that you buy and sell on a stock exchange (BSE or NSE), are stored in a demat account. The shares that are stored in your demat account are dematerialized (stored in the electronic format) and not as physical shares.

When you buy shares, your broker credits your demat account with shares. These shares are reflected in your statement of holdings (You can see details of the shares you have bought in your account).

When you sell the shares in your demat account your account is debited (Shares are debited/move out of your demat account) and money is paid to you for the shares you sell).

You need to submit a DIS (Delivery Instruction Slip), to your broker, where you fill in the details of the shares you sell. There are 2 depositories in India. They are the National Securities Depositories Limited (NSDL) and the Central Depositories Services Limited.(CDSL).

Why invest in Demat and Trading Accounts

Safety

Physical share certificates can be lost, forged, stolen or destroyed in a fire. Dematerialized shares face no such problems.

No Paperwork

Shares are stored in an electronic format. There is no paperwork needed. This saves on cost and increases the speed of transactions.

Ease of Transaction

Shares arising from splits and mergers, are easily credited to your demat account. Dividends credited to bank account.

Buy and Sell Fast

This is an electronic account. You can access and operate your account anywhere. You can buy and sell shares at great speed.

How can you open a demat account in India?

A demat account can be opened with a depository participant, which may be a bank or a stock broker who has a license to do so. You must have a PAN card to open a demat account as it is very important for your KYC (Know Your Client), norms.

You also require an identity proof (Voters card or your PAN card itself) and an address proof (Passport or a Drivers license).You have to sign across the copies of the passport and the PAN card and submit them to your depository participant, as part of your know your client (KYC) norms.

Charges in a demat account

Demat account opening fees: This covers the cost of the agreement with the depository participant.

Annual maintenance fees: These fees are charged in advance mainly for the maintenance of the account and the services rendered

Custodian fees: This is mainly charged for the safe keeping of shares in the demat account and is charged based on the number of shares held in the account.

Brokerage fees: Whenever a share is bought or sold, certain transaction or brokerage fees are charged.

Dematerialization fees: In order to convert physical shares to the dematerialized form, certain nominal amounts are charged.

What is a trading account?

You can only store shares in a demat account. In order to buy and sell shares you require a trading account.
You can also opt for the 3-in-1 account which is:
Your bank account + Demat account + Trading accountSimple:
You buy shares through your trading account
Money is debited from your savings bank account and shares are automatically credited to your demat account.
You sell shares through your trading account
Money is credited to your savings bank account and shares are automatically debited from your demat account.

What is a basic services demat account?

You can open a basic services demat account if you are a first time investor in the stock market. You can also open a basic services demat account, if you already have a demat account and you are the sole (only), holder of this account.

You can have only a single basic services demat account.

Why you need a basic services demat account?

If you are a small investor in the stock markets with holdings less than INR 50,000 then it would be wise to opt for a basic services demat account also called a no-frills demat account. There are no annual maintenance charges (Maintenance charges are nil), if the holdings in your demat account are less than INR 50,000.

If the value of the shares in your demat account (value of your holdings) are between INR 50,000 - INR 2,00,000, then you will have to pay an annual maintenance fee of INR 100. If the value of the shares in your account exceeds INR 2 Lakhs, then you will have to pay an annual maintenance fee, which is the same as that of any normal demat account. You have the option to convert your demat account to a basic services demat account, if the value of your shares (holdings) slips below INR 2 Lakhs.

 

Concepts & FAQ's Demat and Trading Accounts

What is a Demat Account?

Until the late eighties Indian stock market was overwhelmed by paper shares which were becoming increasingly difficult to maintain. There were various problems faced due to practice of paper shares such as fake and stolen shares, fake signatures and signature mismatch, duplication or mutilation of shares, and transfer problems. On top of all these risks, the system had cumbersome procedures and excessive paperwork.

To avoid all such problems, government of India came up with a new system where trading should be through "Dematerialized" form with the help of an account called Demat account. You don't have to possess any physical share-certificates showing that you own these shares. They are all held electronically in your account.

If you want to buy or sell stocks you need to open a Demat account in India. It is just as opening an account with a bank. To open your Demat account you have to approach the DPs (Depository Participant). Demat account will help you to buy and sell shares without endless paperwork and delay.As you buy and sell the shares, they will be automatically adjusted in your account. The charges for account opening, annual account maintenance fees and transaction charges vary between DPs (Depository participants).

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Benefits of having a Demat Account

  • Ability to buy or sell stocks

  • Immediate transfer of securities.

  • A safe and convenient way to hold securities.

  • No stamp duty on transfer of securities.

  • Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.

  • Reduction in paperwork involved in transfer of securities.

  • Reduction in transaction cost.

  • No odd lot problem, even one share can be sold.

  • Nomination facility.

  • Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately

  • Transmission of securities is done by DP eliminating correspondence with companies.

  • Automatic credit into Demat account of shares, arising out of bonus/split/consolidation/merger etc.

Frequently Asked Questions

Does Demat account provide the same interest rate as the savings account?

No. Demat account is for holding Dematerialized securities (Shares, Unit of Mutual funds etc). It does not have any savings in it. Hence the question of Interest does not arise.

What are the charges applicable in a Demat account?

  • Account opening fee

  • Annual maintenance fee.

  • Custodian fee.

  • Transaction fee.

How do I transfer from one Demat account to another Demat account?

Transfer of securities from one account to another account can be affected through off-market transactions (i.e. without routing through the broker or stock exchanges) by furnishing the depository participants identity number and the client identity no. The duly filled in slip is to be submitted to the concerned DP with whom you have the Demat account. The transfer is affected by NSDL after receiving the executed document forwarded by the DP on behalf of the Client. Charges are applicable and the transferor will have to disclose the market value of the shares intended to be transferred in a separate form which is to be annexed along with the off-market transfer slip.

What are the maintenance charges for a Demat account? Are there any hidden charges or processing fees on the transactions I do on Demat account?

Maintenance charges are also known as folio maintenance charges, and are generally levied in advance. The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis. While some DPs, such as SBI, charge a flat fee per transaction, Some DPs charge only for debiting the securities while others charge for both.

Do I have to pay yearly maintenance charges even if I do not hold any shares in my Demat account?

Yes but it differs from broker to broker. Some brokers have annual maintenance and some don't.

Can a person have more than one Demat account on his name?

Yes, a person can have more than one Demat account on his name. There is no restriction on number of Demat accounts which an investor can open. An investor can open more than one account in the same name with the same DP and also with different DPs. For all the accounts, investor has to strictly comply with KYC norms including Proof of Identity, Proof of Address requirements as stipulated by SEBI and also provide PAN number. The investor has to show the original PAN card at the time of opening of Demat account.

Do I have to keep any minimum balance of securities in my account?

No. The depository does not prescribe any minimum balance. You can have zero balance in your account.

Is it mandatory to have a Demat account to apply in an IPO?

Yes it's mandatory to have a Demat account to apply in an IPO. IPO Allocated shares are transferred to investors through Demat account. If you don't provide correct Demat account information, your IPO bidding application will not consider for share allotment. Always double check that you provided correct DP ID and Client ID details in the bid/application forms before submitting the form.

What is the procedure for opening a Demat Account?

  • A demat account can be opened with any registered depository participant. The list of registered depository participants is available on the National Securities Depository Limited and Central Depository Services Limited websites.

  • The depository participant has to be chosen from this list.

  • An account opening form needs to be filled up and an agreement signed with the depository participant.

  • The identity proof and the residence proof need to be submitted which might include a copy of the passport, pan card or an attested copy of the bank account details.

  • On the account being functional a unique beneficial owner identification (BO ID) is allocated which has to be quoted while making the transactions.

  • While buying shares an order needs to be placed by quoting the beneficial owner identification. The shares will be credited to the demat account by the depository participant. Payment towards this transaction will be made from the bank account of the beneficial owner.

  • While selling shares the depository participant to be provided with a delivery instruction from the delivery instruction slip booklet.

  • The charges for opening and maintaining the demat account varies depending on the depository participant.

  • The major charges involved are the account opening fee, the annual maintenance fee, the custodian fee and the transaction fee.

  • The annual maintenance fee is mainly charged in advance, The custodian fee is based on the number of shares held in the demat account and is charged on a monthly basis. The transaction fee is mainly levied during the buying and selling of shares on a monthly basis or at a flat rate.

What exactly is dematerialisation?

Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor's account with his Depository Participant [DP]. In order to dematerialise his certificates, an investor first has to open an account with a Depository Participant. He then has to request for the dematerialisation of his certificates by filling up a dematerialisation request form [DRF], which is available with his DP.

Can a Demat account opened for a minor?

Yes Demat account can be opened in the name of a minor. The account will be operated by a guardian till the minor becomes major, Guardian has to be the father or in his absence mother. In absence of both, father or mother, the guardian can be appointed by court.

Can someone else operate my account on my behalf on the basis of a power of attorney?

Yes. If you authorise any person to operate your account by executing a power of attorney and submit it to your DP, that person can operate the account on your behalf.

Can I hold other securities in same demat account?

Yes you can have same demat account for the purpose of holding other securities such as government securities, mutual funds etc.

 

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