What Is a Demat Account?

The full form of demat is a dematerialised account. It is a digital account used to hold financial securities like shares, bonds, ETFs, and mutual funds in electronic form. As mandated by the Securities and Exchange Board of India (SEBI), you need a demat account to invest in the share market.

A trading account is different from a demat account, but both are typically opened simultaneously. A trading account is used to buy and sell securities, while a demat account holds shares electronically and maintains ownership records safely and securely.

In India, the demat account was first introduced in 1996 for transactions on the National Stock Exchange (NSE). Later, the Bombay Stock Exchange also shifted to digital trading and investing.

SEBI made it mandatory that, by 31 March 2019, all physical share certificates held by investors be converted into dematerialised form for selling and transferring.

What is a Demat Account?

A demat account is a digital account used to hold shares, ETFs, mutual funds, bonds, and other financial securities electronically.

When you buy shares on stock exchanges like NSE and BSE, the shares are stored in a demat account, and their ownership is recorded online.

You open a demat account with a depository participant (stockbrokers), but the shares are held with a central depository, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

Every demat account has a unique 16-digit number consisting of a DP ID and a Client ID. This account number identifies an individual demat account and helps maintain records of securities ownership.

Also Read: What is a Trading Account?

How Does a Demat Account Work?

The main purpose of a demat account is to hold securities and record their ownership. However, buying and selling securities also requires a trading account.

A trading account links the investor's bank account with their demat account. You place a buy or sell order through your trading account; when the order is executed, the shares are debited or credited to your demat account after the T+1 settlement cycle.

In simple terms:

• When you buy shares on a delivery basis, the shares are credited to your demat account.

• When you sell shares, the exact number of shares is debited from your demat account.

Also Read: Difference between Demat and Trading Account

Features of a Demat Account

Here are the main features of a demat account:

• Electronic Storage:

In a demat account, securities are maintained digitally, making investment records easier to access, manage, and track through online account platforms.

• Easy Transfers:

Investors can transfer eligible securities electronically between demat accounts by following applicable procedures and regulatory requirements.

• Corporate Actions:

Investors can receive eligible benefits such as bonus shares, stock splits, dividends, and rights entitlements directly through their accounts.

• Online Access:

Investors can view holdings, transactions and account information using digital platforms offered by their brokers.

Types of a Demat Account

Demat accounts are classified into three types, as follows.

Regular Demat Account

Resident Indian investors generally use a regular demat account to hold and transact in securities electronically within India.

Repatriable Demat Account

A Repatriable Demat account is available to eligible non-resident Indians for investments where eligible proceeds can be transferred outside India.

Non-Repatriable Demat Account

Eligible non-resident Indians use a non-repatriable demat account when investment proceeds are subject to applicable non-repatriation conditions.

What is a Demat Account Number?

A demat account number is a unique 16-digit number used to identify an individual's demat account.

The CDSL demat account number is a 16-digit number. An NSDL demat account number is alphanumeric; it starts with “IN” followed by a 14-digit number.

The demat account number is also known as a BO ID. A depository participant provides this number after you open an account.

Benefits of a Demat Account

Here are the benefits of opening a demat account:

• Paperless Investing:

Digital securities eliminate dependence on physical certificates, simplifying record-keeping and reducing paperwork associated with investment ownership.

• Faster Settlement:

Electronic transactions allow securities to be credited and debited through established market settlement systems without handling physical documents.

• Lower Operational Hassles:

Investors can manage holdings, transfers, and eligible corporate actions digitally without maintaining or submitting physical investment certificates.

• Portfolio Monitoring:

Online platforms allow investors to review securities, transaction history, and portfolio information through a single digital account.

How to Open a Demat Account?

To open a demat account, first choose a SEBI-registered broker that suits your financial needs. Then follow the instructions below:

• Choose a broker and visit the website to enquire about the charges and features.
• Sign up with a mobile number.
• Enter your PAN number.
• Fill in the personal details as asked.
• Enter bank account details to link your trading account.
• Choose the segment and upload income proof to activate the F&O segment.
• Verify the details using Aadhaar-based KYC
• Complete the In-person verification

After document verification, you will receive your user ID and password by email. You can log in, reset your password, and begin your trading and investing journey.

Documents Required to Open a Demat Account

Here is the list of documents required to open a demat account:

• PAN number
• Aadhaar number
• Mobile number linked with Aadhaar
• Bank account details
• Any one Income proof document, such as an income tax return, last 6 months' bank statement, or recent salary slip.

What are the charges included in a Demat Account?

Here are the common charges included in the demat account:

• Demat account opening fee:

This is a one -time fee to be paid while opening a demat account. The fee depends on the broker you choose.

• Annual Maintenance Charges (AMC):

Investors pay the AMC annually to maintain the account.

• Transaction Charges:

Investors may incur charges for certain transactions, including securities transfers, depending on the service provider’s applicable pricing structure.

• Service Charges:

Additional fees may apply for specific services, statements, physical requests, or other account-related facilities offered by the provider.

FAQs

Who can open a Demat Account?

Residents and non-residents of India can open a demat account. You can also open one in a minor's name, as long as their legal guardian operates and monitors the account.

Why open a Demat Account?

You generally need to open a demat account to invest directly in the share market. A demat account is required to hold securities in electronic form when investing directly in listed securities. This account stores financial securities electronically, reducing the risks associated with the loss and forgery of physical certificates.

Can a Demat account be opened jointly?

Yes, you can open a joint demat account. It must have at least two holders and no more than three. The first holder is a primary holder,r and the other two are secondary holders.

Can I have two Demat Accounts?

Yes, you can have two or more demat accounts, but with different brokers. You cannot open two accounts with the same broker.

How long does it take to open a demat account?

It usually takes five minutes to open a demat account online when all the documents, such asa PAN card, Aadhaar, a mobile number linked to Aadhaar, and a bank account, are available.

Is my money safe in a demat account?

Yes, your money is completely safe when you open a demat account with a SEBI-registered broker. Keep using a strong password and two-factor authentication (2FA) to improve your account security.

Can I transfer shares between different accounts?

Yes, you can transfer shares between Demat accounts using a Delivery Instruction Slip (DIS) or through an online facility, if both accounts support it.