Which demat account is best?

Published on Friday, September 7, 2018 by Chittorgarh.com Team | Modified on Sunday, August 9, 2020

With the introduction of technology in trading and investments, a demat account is a prime necessity for investments in stocks, options, futures and IPO etc. In 1996, dematerialization was introduced. Dematerialization is the process of converting physical certificates of investment instruments held by an investor into electronic form. In the past, when shares were traded in exchanges, physical certificates of shares would be handed over to the buyer in exchange of cash. With the introduction of online trading, certificates in electronic form are transferred to a buyer's demat account. According to Economic Times, around 3.76 million new demat accounts were opened in the financial year ending March 31, 2018.

What is a demat account?

A demat account is an online storage space where all your holdings in various investment instruments are held. It works similar to a bank account. Every time you buy a stock or an Option, your holdings are transferred to this account.

A demat account many benefits to investors like:

• A single place to hold all your investments
• No risks of thefts/damage/cheating
• Facilitates quick transfer of delivery
• No need to give account details every time you trade

How demat account works?

There are 3 participants in a demat account-

• You, an investor
• Central Depositories- CDSL and NSDL
• Depository Participants (DPs)- Banks and brokers who are the intermediaries between an investor and the central depository.

Banks or brokers tie-up with either of the Depository Participants. As an investor, you have a choice to select a bank or a broker. But you don't have a direct choice in choosing the DPs. The demat accounts are actually opened with DPs with banks or brokers being the facilitators.

Your trading account is linked with your demat account. You cannot trade online without a demat account linked with your trading account. You can open and maintain multiple demat and trading accounts. However, the certificate of instruments purchased will only be transferred to the demat account linked with the trading account from which you have bought the shares or derivatives.

What Is The Difference Between NSDL And CDSL?

National Securities Depository Ltd (NSDL) and the Central Depository Services India Ltd (CDSL) are central depositories who manage the demat accounts of the investors. Like banks, which holds your money, CDSL and NSDL hold the certificates of your investments. When you buy a share or an option, the certificates of holdings are credited by these depositories and are debited on selling.

Which is best, CDSL or NSDL?

(As on 31st August, 2018)

Which one to choose - NSDL or CDSL?

Honestly, there's not much difference between both the depositories. Both are government registered and have reputed names as promoters. There's not much difference in the facilities they offer.

One difference between the two may be in charges. NSDL and CDSL charge fees to DPs for a CM account per exchange. They don't charge directly to the investors. But obviously, whatever fee is charged from DPs will be passed into you. There is a difference in fees charged by NSDL and CDSL.

So check their current fees to find the best central depository for you and then choose one of the brokers who have a tie-up with the concerned depository.