From the time of owning and maintaining physical stock and bond certificates to the fast-paced world of electronic trading, financial markets in India have come a long way. SEBI has made it mandatory to have a Demat account for anyone who wants to buy and hold shares for delivery, putting an end to the centuries-old practice of certificates.
Demat or securities accounts aren't just more safe, more convenient, and more transparent. They help relieve corporate registrars and other officials of the arduous task of keeping up with lost certificates, re-issuing them, and keeping a manual track using the shareholders' register.
Setting up a security account online in India is as simple as it can be, especially with the intensifying competition within this space, that has brought retail traders and investors to the centre of attention, with hassle-free customer service, paperless approvals, and a whole host of deals, offers, and promos to scout and hold onto to customers.
Understanding Demat Account Terminologies
Several terms might seem alien to an inexperienced investor, and we provide a brief overview of most of them in this article.
1) Demat Account - Starting from the very top, a dematerialized securities account essentially refers to a dematerialized account keeping track of all shares, bonds, and other securities in one place, with no requirements of any physical attributes to represent the same.
A dematerialized account essentially stores securities in an electronic format and shouldn't be confused with a trading account, which pertains to buying and selling said securities.
2) Statements - Being a financial account, a securities account provides several statements about different use cases and information. This includes the statement of holdings, which provides an overview of the account's locked-in balances, free balances, and pledged balances.
Other statements pertain to the current portfolio holdings, their values, gains, and losses, along with the transactions performed over time, to best ascertain the performance of all investments in one place.
3) Power of Attorney - A POA is a crucial feature of such accounts that allows account holders to designate, or authorize other individuals to manage the account on their behalf, often based on the terms and conditions prescribed in the POA document.
This legal document assigns authority to either a broker or a qualified third-party individual to execute changes and manage your account, along with the securities held within, as per the guidelines and instructions outlined by the first party.
4) Nomination Facility - Similar to a bank account, a Demat account provides a nomination facility that allows for a hassle-free transfer of assets, and securities to the nominee, in the event of death or incapacitation.
A maximum of three individuals can be included as nominees for the account, provided they sign the nomination document in question.
Getting Started With An Online Demat Account
1) The first step towards opening a Dematerialized securities account involves submitting an account opening form to the depository participant (DP) of your choice. A DP is a broker, bank, or financial institution registered with the NSDL or CDSL.
As discussed earlier, there have been numerous customer-centric innovations in this regard, with many brokers offering a fully-online paperless process for opening a dematerialized securities account, along with a few others willing to send an agent home to get the forms and other requirements in order. This makes it much harder to narrow down the best online Demat provider.
Even though it is increasingly simple to open a Demat online, many customers still prefer the personal touch.
2) With the account opening form, prospective applicants must submit self-attested photocopies of KYC documents, preferably Aadhar Cards, PAN Cards, or Passports, as proof of name, address, and other relevant compliance requirements.
The information provided on the application form must match the KYC documents. Additional procedures must be followed if the address changes or if anything else needs to be updated.
3) After the KYC verification, the depository participant will require the customer to sign a few agreements, defining their roles, overall terms, and conditions of the service provided.
Most of this is a boilerplate, but a few additional terms can be included about certain peculiarities of individual brokers. This is where many brokers keep their hidden fees, intending to keep investors completely oblivious to the same, even though most offer free account opening online.
4) Once everything is done and dusted, you will receive a unique Beneficial Owner Identification Number or BO ID, which must be stored safely. You will be used to access the account going forward.
How To Use A Demat Account Online In India?
Most brokers today offer 3-in-one savings, Demat, and trading accounts, where you can have your money stored in a savings account, which you can then use to acquire stocks, bonds, and mutual funds to be stored in your Demat account. If necessary, you can buy, sell, and transact using a trading account.
Almost all DPs provide access to online Demat accounts, further adding to the convenience and transparency of tracking your overall investments and portfolio in one place. Here are the steps to start using the account online in India.
1) Once your account is set up and ready, you should receive a customer ID and login access to the online portal.
2) After logging in, you will be intimated to change your customer ID and password and set further security measures on your first visit.
3) You will then see a comprehensive overview of your portfolio holdings across stocks, bonds, mutual funds, and SIPs.
4) Your investment, performance of various securities, and past transactions will all be visible with perfect transparency.
5) Since your account will be linked to a savings account, any investments and withdrawals will be made directly using the connections within these accounts, making it all the more convenient for investors.
Final Words
The intuitive interfaces and robust performances make it an absolute charm to get started with Demat accounts online in India.
A fully-functioning Demat account remains essential for anyone interested in investing money beyond the regular FDs or savings accounts.
Frequently Asked Questions
How Do I Check My Demat Account Status Online?
A Demat account, its status, related statements, and more can be checked on the CDSL's website. Any account holder can log in using their PAN Number and account number on the login page.
After logging in, account holders can view a complete summary of their account, its holdings, balances, and more, apart from initiating transactions in securities, withdrawals, or cash deposits.
Which Is The Best Bank For A Demat Account?
Almost all banks offer a Demat account linked with savings and checking. The following are the most popular in India - ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, and SBI.
The core functionality and standards for Demat accounts remain the same across the board. However, a few service providers provide add-on services that can prove valuable in the long run.
How Many Demat Accounts Can One Individual Own?
A person can have any number of accounts. The only restriction is that they should all be linked to one PAN Card.
Can I Keep Money In My Demat Account?
This account only electronically stores shares, bonds, mutual funds, and other related securities. It does not deal with cash transactions.
Since Demat accounts are often linked with savings and trading accounts, cash balances are maintained in the other accounts before the resultant securities transactions are transferred to the Demat account.
Can I Buy Shares Without A Demat Account?
It isn't possible to buy publicly listed equities without having a Demat account, at least as per recent rule changes that saw the end of physical share certificates and other relics of a bygone era. A Demat account is essential for storing stocks, bonds, and other securities in a dematerialized format.
Can Money Be Transferred To & From A Demat Account & Savings Account?
Transactions as such mainly take place in a trading account. This account mainly deals with the credit and debit of securities as and when you transact. Withdrawal of funds can be initiated via a trading account, not the Demat account.