Demat account opening: How to open demat account in India

It was in 1996 that Indian markets switched over to Demat accounts. Before that stocks and shares used to be exchanged via physical receipts called certificates, which involves lengthy paperwork and takes up a lot of time. Demat accounts -- which allows the investor to hold securities in an electronic form -- let the investor buy and sell as well as transact not only shares and stocks but other products conveniently without the need of any sort of paperwork. A Demat (shortened form of dematerialised) account holds all the investments an individual makes -- be it in shares, exchange-traded funds, bonds and mutual funds, etc. -- in one place. If one wants to invest in stock markets it is the primary and utmost requirement that he open a Demat account. It makes the entire process of share trading easy, secure and speedy.

A Demat account works the same way as a bank account. When shares are purchased your money gets deducted and vice versa.  You can open a Demat account without possessing any shares and can maintain a zero balance in your account. The charges of Demat account depends on the volume held in the account and the type subscribed.  and the terms and conditions laid by the depository and the stockbroker. There are two depositories who manage Demat account: National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL).

 

Why do you need to open a Demat Account?

With the entire financial platform of investing, trading and maintaining /holding stocks and shares switching over to electronic or digitised format, opening a Demat account has become a necessity of the day. Essential to trade in India’s stock exchanges, Demat accounts save time and offer the user a seamless and straightforward experience.  the conversion of securities into different formats happen in no time. By giving instructions to your DP (depository participant) one can initiate dematerialisation formalities, i.e. to convert the physical share certificates into electronic form.

Earlier, holding shares and stocks in physical form has been a challenging task, with chances of them getting misplaced or damaged. With dematerialisation made possible, this safety concern has been addressed to a big extent.

One can hold various investments like mutual funds, bonds, equity shares, and exchange-traded funds under one Demat account. Moreover, it is not essential that you should possess shares or balance to retain or open the Demat account. Also, there is the corporate advantage of bonus issues, rights share, stock split, etc. directly getting updated in the account. A Demat account retains certificates of financial instruments such as shares, stocks, bonds, index and gold, government securities, mutual funds, initial public offerings (IPOs), Exchange-traded funds (ETFs), and non-convertible debentures (NCDs) which are traded on the exchanges. Unlike physical trading, there are no additional costs of stamp duty, handling charges, etc. involved when you are trading with a Demat account.

Your securities in your Demat account can act as collateral towards a loan. That means, the securities held in the account can provide the investor his exact and detailed holding to enable him to apply for a loan from a bank or financial institution.

 

Process on how to open a Demat account

The procedure to open a Demat account and the mandatory documents required are mostly similar across banks, brokers, and other financial organisations that act as an online trading platform. An investor can open the account online in minutes through any bank or financial institution. Before submitting any document, one should ensure that the certificates are valid as on submission date and they haven’t crossed the expiry date. Now let us discuss the process of opening a Demat account.

Firstly, one has to approach a depository participant (DP), that could be a broking firm, a bank or any agent of depository, and fill up an account opening form. The list of DPs is available in the websites of depositories: CDSL (Central Depository Services (India) Ltd and NSDL (National Securities Depository Ltd).

Complete the account opening procedure and as required attach the documents. You will then have to enclose photocopies of some documents for proof of identity and proof of address with the account opening form and submit it with the DP. Remember to carry original documents during verification.

You will also have to sign an agreement with DP in the depository prescribed standard format, which gives details of the rights and duties of investor and DP.

After in-person verification and successful processing, the DP will open an account and the client will receive a Client ID from DP. You will have to access these details online.

On becoming a Demat account holder, you would be required to pay annual maintenance charges (AMC) for maintenance of the account. Most of the banks have waived off AMC charges for the first year. Also, the transaction fee would be charged for conducting trade transaction, which would vary with different brokers. In case you hold physical shares, the DP may charge you a separate fee for dematerialisation of the shares.

Once these procedures are over, all your purchases/ investments in securities will then be credited to this account.

You can have multiple Demat accounts if you so wish. You can choose your DP as per your convenience and there is no compulsion to open DP account with your stockbroker.

 

Documents required to open a Demat account

You will have to submit proof of identity, income and address, for which you can submit any of these documents.

Proof of Identity: 

PAN card having a valid photograph

Aadhaar card / Voter ID card / Passport / driving licence

Identity card with a valid photo issued by Central/State government and its Departments, Public Sector Undertakings, Scheduled Commercial Banks etc.

Proof of Address: 

Passport/ Voter’s Identity Card/ Ration Card/ Registered Lease document or Sale Agreement of Residence/ Driving License/ Flat Maintenance bill/ Insurance Copy.

Bank Passbook which is not more than three months old.

Utility bills like landline telephone bill, electricity/ gas bill which is not more than three months old.

Self-declaration of the new address given by judges of the High Court or Supreme Court.

Address proof which is issued by bank managers of Scheduled Commercial Banks/ Scheduled

Cooperative Bank/ Multinational Foreign Banks, Gazetted Officer / Notary public, Member of Legislative Assembly, Member of Parliament.

Identity card containing address which is issued by Central/ State Government and its Departments, Statutory/ Regulatory Authorities, PSUs, Scheduled Commercial Banks etc.

Proof of Income: 

Salary Slip of the current month or Form 16.

Photocopy of the Income Tax Return (ITR) acknowledgement slip submitted to the Income Tax Department during tax filing.

Latest statement of a bank account containing the income history of the last 6 months.

Certificate of Net Worth or photocopy of the annual statement of accounts authenticated by a Chartered Accountant.

A statement of Demat Account holdings with an eligible DP.

 

Things to remember while opening a Demat account

A Demat account opening procedure and the mandatory documents required are almost similar across brokers, banks, and other financial organisations that act as an online trading platform. The essential documents one has to keep handy for easy account opening are Aadhaar card, PAN card and Cheque Book. Since the opening of a Demat account is mostly a paperless process, all one needs to do in the case of most of the DPs is uploading a picture of your Pan Card and Address Proof. However, before uploading or submitting any document, one should take care that the papers are valid as on submission date and that they haven’t crossed the expiry date. Most of the brokers/ banks pre-fill them once you provide them with PAN number and Date of Birth. All you need is just to verify them.  Once done with your document uploading part, review your complete form carefully and e-sign it digitally using Aadhaar.

Also, you have to update your bank account details (bank account number, IFSC code) and postal address etc of your Demat account as and when there is a change. This is most important as you will receive direct credit of refunds, dividends, interest & redemption payment and corporate correspondences like annual reports notice of AGMs etc. as per the details mentioned in your Demat account.

 

FAQs

How can I demat my shares?

To demat your physical certificates, you should approach the DP and submit a Dematerialization Request Form (DRF) along with the physical certificates by marking 'Surrendered for Dematerialisation'. Separate DRF has to be filled for each ISIN.

What is an ISIN number?

ISIN (International Securities Identification Number) is a unique 12 digit alpha-numeric identification number allotted to each security. (E.g. INE214T01019). Fully paid-up equity shares, partly paid-up shares, equity with differential voting/ dividend rights issued by the same issuer will have different ISINs.

What are the benefits of a Demat account?

One key benefit is the lower risk involved. Threats posed with physical securities in the form of thefts, losses, or damage are completely eliminated with the opening of a Demat account. With the option of holding all investments in electronic form, the holding of certificates will be easy as maintaining physical papers are a tedious job. It also cuts down on time and costs as there is no paperwork involved and you can do away with additional costs including stamp duty.

How long will it take for the trade to get reflected in one’s Demat a/c?

Once the trade is processed through the linked trading account, it will take transaction plus two days for the securities to reflect in the Demat account. You can also get a statement of your entire portfolio on the Demat account at any point from anywhere online.

Can I have multiple Demat accounts?

Yes. One can have multiple Demat accounts. However, there is one condition. You cannot have multiple Demat accounts with the same broker or DP.

Can I transfer my Demat account from one broker to another?

You cannot transfer your Demat account. But you can transfer shares from one Demat account to another. For this, you will need to fill the Delivery Instruction Slip Book (DIS) and submit it to your DP to transfer shares. If both the DPs involved in the transfer are not associated with the same central depository (CDSL or NSDL) you will need an INTER-Depository Instruction Slip (Inter DIS). If they are, you will need an INTRA Depository Instruction Slip (Intra DIS).

Can I link a trading account with Demat account?

Yes, you can link your trading account with a Demat account. This will also help avoid providing your Demat account details for every transaction. Once the order is processed, the shares will be either deposited or debited from the linked Demat account.

How can I change my signature in Demat account?

Visit the branch and submit an application for the same. New signature(s) of the holder(s) should be attested by the banker. You will have to submit a request for change of signature in the prescribed format signed by a/c holders. Also, self-attested proof of identity of account holder(s) whose signature is/are to be changed. You will also have to cite the reason for the change of signature.