Things to keep in mind before opening a demat account

Things to keep in mind before opening a demat account

If you’re new to the world of trading, you may not be familiar with the term Demat, as the term suggests, it stands for dematerialization. A dematerialized account is an online account which holds all your securities - that is shares, bonds, securities, FDs, mutual funds and exchange traded funds (ETFs) in a ‘dematerialised’ form.

Key Points

  • Up until 1996, traders and investors held securities in paper form that they had to protect from rain, heat and other factors that might destroy them! Until the advent of the internet and inexpensively accessible technology, traders and investors held their securities as paper certificates that needed to be carefully stored.
  • To open a trading account, you’ll need an ID proof, address proof and PAN card. You will primarily require 2 documents, in addition to the mandatory requirement of a PAN card.
  • Skip all the paperwork and get all of this done online with Upstox’s Aadhaar-based eKYC.

All of this changed once the world decided to ‘go digital’ - and the demat account was born.

Now, a dematerialized account is essential to trading and investing in securities. Which brings us to the next important question - what do you need to get started?

Requirements to open an account

There are some mandatory requirements that are essential to open a demat account. You need to keep an eye on these before applying and start trading - like the fees and documents.

Account opening charges

There are multiple types of charges which you will discover while opening and operating the account. Primarily there are 3 you’re likely to come across.

  • Annual Maintenance fee: This charge is primarily levied yearly in advance to keep your account working and providing you services regularly as per your demand. This fee (Rs. 300-800) may be charged higher by traditional brokers.
  • Account opening charges: Keep in mind that different institutes will have various account opening charges depending on their structure, overhead costs and the services they provide. Compared to other traditional brokers and banks, discount brokers levy a low cost on demat account opening.
  • Transaction fee: A brokerage firm usually levies a charge on each transaction. This fee could vary based on the value of your transaction, or on the number of stocks, and is likely to be the most significant proportion of your total charges. The landscape seems to be changing though - discount brokerages such as Upstox charge zero fees on delivery trades, and as low as Rs 20/- on intraday trades.

Other charges may include custodian fees and dematerialisation fees - both of which are included in documents required for demat account.

Documents required

Similar to the trading account opening process, opening a demat account also involves the submission of some documents.

To open a demat account, you’ll need an ID proof, address proof and PAN card. You will primarily require 2 documents, in addition to the mandatory requirement of a PAN card.

Identity proof:

You will have to submit a copy of any one of the following documents:

  • PAN card
  • Voter’s ID card
  • Passport
  • Driving License
  • Aadhaar card

These government issued ID cards must also have your photo.

Address proof

As proof of your resident address, you will have to submit a copy of any one of the following documents:

  • Ration card
  • Passport
  • Driving license
  • Bank passbook
  • Electricity bill
  • Voter’s ID card

Steps to open a demat account

While opening a demat account, keep in mind that you should select a SEBI registered intermediary, which offers a 2-in-1 service - that is, both a demat account and a trading account. SEBI registered brokers are required to adhere to prescribed rules and regulations, thus making them more reliable and secure vs. those who aren’t. As a new trader in the stock markets you should keep in mind that there are several scammers who might not be a registered broker with SEBI. Be careful when you trust these brokers with your finances!

  • First, you have to select a broker or firm. The broker must respond to your demands in a timely order. Time is everything in the stock market. Ensuring a good broker is a very important decision.
  • You should compare the brokerage rates. Most brokerages or firms charge a processing fee. Some also have certain financial products for zero brokerage.
  • Next, get in touch with the brokerage firm or the broker and begin the demat account opening procedure.
  • Most brokerages would send a representative to your house or office with the demat account opening form and Know Your Client (KYC) form. You’ll have to fill up a power of attorney form  as well and give these forms alongwith the required documents (proof of identity and proof of address) to carry on the process.
  • Alternately, skip all the paperwork and get all of this done through online demat account opening portal.
  • Once all the procedures are completed, you will be provided with the details of your trading account.

Advantages of demat account

Demat account has introduced a paperless element to transactions. Thus, making life significantly easier for traders and brokers.

There are multiple benefits to this shift in how we trade:

  • Auto update: Your transaction details are automatically updated on the server. You do not need to manually update it each and every time you transact in shares, mutual funds or ETFs.
  • Common account: No matter how many bank accounts and trading accounts you hold, your demat account can keep track of all of the details (bonds and investments) in a common account.
  • Lower cost: Much of your fees and charges for trading are cut down since paper maintenance is a thing of the past.
  • Safety: Safety is one of the major attributes of a trading account. You are totally safe from theft and any kind of fraud.
  • Time: As everything happens online, the transactions and deliveries are instant, and save you a considerable amount of time. If you’ve been trading- you know that time is a very important factor in the financial world. Each second counts.

Wrapping Up

  • A demat account is essential for you to ‘hold’ your securities.
    Opening a demat account right away would be a wise move if you are keen on investing in the stock market.
  • Before you begin, remember to compare charges, fees, and services to choose the best brokerage for you.
  • You’ll need your PAN Card, an ID proof, and an address proof to open a demat account.
  • You can complete the entire registration process online with Upstox’s Aadhaar-based Demat account Opening.
  • Once you’re done, get ready to absorb all the advantages a demat account can offer you - lower costs, faster and safer transactions, and the convenience of a common account.