The consistent growth of the Indian economy over the past few decades has led people to want to invest in share markets more. Still, they are sceptical about using the dematerialization account. Many potential investors do not know the Demat account opening charges or eligibility criteria. Here we will discuss some basics about opening a dematerialization account.
What is the Minimum Amount to Open Demat Account?
If you want to trade on the stock exchange, you must open a Demat account. The minimum amount to open a Demat account has been significantly reduced. Some of you do not have a single penny to open an account. It entirely depends on the DP – Depository Participant you choose, who can charge you a minimum range between 0-INR 500 to start operating an account.
Just like your bank secures your money, your account secures the securities, shares, and funds you invest in. You can invest in stocks from the comfort of your home, and you do not even have to purchase stamps or visit the company's registrar while trading.
A Demat account saves you from the worry of theft of stock certificates. Now all these services cannot come for free – So even though you do not have to pay anything to open an account (in most cases), there are some other charges associated with it that you must look into.
Common Charges That You Need to Pay for The Upkeep of Your Demat Account
Annual Maintenance Fee (AMC)
The service provider should pay account maintenance fees to maintain the dematerialization account. It varies widely, wherein some DPs charge a flat fee of up to INR 500, while others waive it.
Demat Account Opening Charges
Usually, the Demat account is opened for free, and there are no costs. However, DPs can charge an annual fee in advance when opening a free dematerialization account. Not all banks/DPs offer free accounts.
Custody Costs
Custody fees are charged to keep your shares safe in the Demat account. These are billed annually and are calculated depending on the kind and number of securities in your account. The charge may range between INR 0.5 to INR 1 per ISIN (securities) for a month.
Transaction Fees/Agency Fees
This is the commission charged for trading Shares. Each time you buy or sell a security, you will have to pay brokerage fees depending on your chosen system, as fees vary from system to system.
Dematerialization Fee
You need to pay a fee to convert physical stocks into an online form. These fees do not apply to all account holders and only apply to those who have physical shares and choose to convert these physical shares into Demat form.
The charges mentioned above can remain the same each month or be modified at the discretion of the DP. It is highly recommended for the investor to check the account fees charged by the various service providers before opening a Demat account.
Eligibility Criteria for Opening a Demat Account
Considering the economic growth, investing in stocks and shares is a great opportunity, but is everyone allowed to do it? Let us check the eligibility requirements to open a Demat account online and start trading on the stock exchange:
- First, there is no minimum age to enter the trading arena. It is a myth that you need to be a minimum of 18 years to open a Demat account.
- You need to complete your KYC using your Aadhar and PAN cards, which are mandatory.
- You can hold your dematerialization account under any of the two custodians in India - CDSL (Central Depository Services Limited) and NSDL (National Securities Depository Limited).
How to Start Using It
Every investor is attributed with a unique ID for identification. You must use the same number for any transactions you make. This helps companies to identify if there is a need to debit or credit shares in their account.
Deposit Participants hold the Demat account, which is also called call brokers. They are intermediaries between you and the central depository.
Who Can Open a Demat Account?
The following kinds of people can open a Demat account online in India.
For Individuals
- Any resident of India
- NRIs
- Minors
Non-Individuals
- Any business
- Partner companies
- Bank
- Mutual funds
- LLP (limited partnership)
- Registered / Unregistered Trust
- Registered / unregistered company
Demat Account Opening Process
Follow these simple steps to start with the Demat account opening process:
Step 1. The first and most important step is to approach the DP or custodian with whom you want to open a Demat account online. Like a bank or an intermediary, the depositary acts as an intermediary between the investor and the depositary.
Step 2. You must complete the online Demat account opening form and submit documents proving your identity and address. You need to keep important documents handy before you open a Demat account, like a PAN card, proof of identity, residence, and a passport photo.
Step 3. You must sign a covenant or a copy of the agreement with your DP, with the rules and regulations followed by the investor and the DP.
Step 4. Once you have signed the agreement and completed the verification of your documents, you will receive your online Demat account number within 15 days. You will also be issued a unique ID, the identification number of the beneficiary holder. Any debit or credit of securities will be done using this ID.
Step 5. Now that you have a dematerialization account, you can start investing in shares, stocks, bonds, insurance, pension funds, etc.
You do not need to have a minimum number of securities and can open Demat account online with a zero amount.
Conclusion
It is wise to diversify your investments by entering the stock market. The risk is high, and the returns are higher than many other forms of investments in India. Opening a Demat account is a simple process, and there are not many Demat account opening charges or high fees. You can grow wealth by entering the regime and opening a Demat account.
Frequently Asked Questions
Is it compulsory to pay fees for opening a Dematerialization Account?
It depends on the DP you are working with. Some charge a minimum of INR 500 as Demat account opening charges, while some do not charge a single penny for opening your Demat account.
What facilities can you use when you open a Demat account?
Investors can use the following facilities with their Demat accounts:
- Stock Transfer of investor's stock holdings.
- Lending facility wherein the securities serve as collateral.
- Dematerialization and Rematerialization wherein investors can convert securities into other forms, for example, transforming physical shares to electronic shares or vice versa.
- Take advantage of company benefits.
What documents are needed to open a Dematerialization account?
You need to submit the following documents when following the Demat account opening process:
- Proof of income
- Proof of Identity
- Proof of address
What are the maintenance changes/hidden charges or processing fees on the Dematerialisation account?
Maintenance fees or folio maintenance fees are billed upfront, and transaction fees are charged monthly for the credit/debit of securities. Some DPs, charge a flat fee for each transaction, whereas some only charge for the debit of securities, while others charge both.
Can a minor operate a Demat account?
A Demat account can be opened for minors. In the absence of both the minor's parents, the guardian will be legally appointed.
How do I open a Demat account?
Follow these steps to open your Demat account:
- Select a DP and fill in a Demat account opening form.
- Send the form together with the required documents and a passport photo.
- Bring all original documents for verification by a DP member.
- An agreement must be signed with the DP.
- A personal check is then carried out.
- After opening the Demat account, you will receive the Demat account number.
Can my Demat account have joint account owners?
Demat accounts can have up to 3 joint account holders. One is the main owner, and the other two are co-owners.
Is it possible for a HUF (Hindu Undivided Family) to operate a Demat account?
A HUF (Hindu Undivided Family) can open a Demat account in the name of the head of the family, the 'Karta.'