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Why Do I Need Demat Account?

Published on Friday, May 31, 2019 by Chittorgarh.com Team | Modified on Thursday, September 5, 2019

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Demat account is mandatory for investing in the Stock Market in India. Demat account holds equity shares, mutual funds, bonds etc. Demat account is used for online investment in stocks, IPO, mutual funds, NCD's, Corporate Bonds ect. Demat account is offered by stockbrokers who works as an agent for central depositories like CDSL and NSDL.


What is a Demat Account?

A demat account is an online repository to hold and manage the securities electronically in a dematerialized format. The demat account works like a bank account. As we hold money in back account, the demat account is to hold equity shares in electronic format.

The demat account facility is offered by the stock brokers registered with NSDL and CDSL, the 2 central depositories in India.


Reasons Why You Need A Demat Account

  1. Hold securities and shares in electronic form and eliminate the lengthy paperwork required to hold them in physical form.
  2. Remove the risk of getting fake shares.
  3. Make the investing process easy and streamlined.
  4. Improve the speed and accessibility of the investors.
  5. Settle trades electronically.
  6. Buy and sell shares and store them safely in a demat account.
  7. Hold a variety of investments such as equity, ETFs, MFs, bonds, etc.
  8. Transfer shareholdings between investors.
  9. Convert the securities in electronic and physical forms as per your need of a demat account by requesting the depository participants.
  10. Access holdings in a demat account from anywhere across the world.
  11. Get access to dividends, interest or refunds automatically.
  12. Avail freezing facility to safeguard account for a specific duration.
  13. Send instruction slips electronically to DPs instead of physical submission for the faster and less cumbersome process.
  14. Eliminate odd lot or single security issue of physical form holding of shares and allow investors to trade even a single share through a demat account.


Demat Account Benefits

  1. Easy and Convenient way of Transaction

    It provides online access to securities in a single click. A demat account eliminates the difficulties which investors used to face by visiting companies. If you have bought the shares today, it will take t+2 days to settle down the deals through a demat account.

  2. No Restriction on Quantity of Numbers

    No, there is no such maximum value limit to hold securities in a demat account.

  3. Secured Way to Hold Securities

    Securities held in a demat account are safer than physical paper format which is prone to theft, damage etc. In a demat account, you can keep all the securities in one place and track them easily.

  4. Saves from Paperwork

    A demat account saves from manual paperwork as you are not required to keep tonnes of physical certificates.

  5. Trade Across Multiple Securities

    You can hold multiple securities such as equity, debt, commodity, currency, mutual funds, Preference shares, etc. in a demat account and trade efficiently.

  6. No Geographic Boundaries

    Investors can open a demat account online and access the holdings from anywhere across the world at any time.

  7. No Stamp Duty

    As per Section 8A (c) (ii) and (iii) of the Stamp Act, transfer of mutual fund units and securities in a demat account are not liable for any stamp duty. Although, stock exchange based transactions attract stamp duty.

  8. No Tax on Dividends

    Some companies pay dividends to the stakeholders as the share of the company's profit. The dividends are credited into a demat account and attract no tax as you have to pay tax only for transactions. So, the dividends can be your alternative source of income credited in your account.


Why it is Important to Open Demat Account?

  1. To Trade in Equities

    The SEBI has notified the investors to buy and sell shares in a digitalized form after Dec 2018. Now, it is necessary to even change previously owned shares in the paper format to electronic form. So, you will need a demat account to trade in equities.

  2. Get a consolidated view of your investments

    A demat account provides a consolidated view of all your investments. This helps in allocations, portfolio balancing and redemptions related decision-making.

  3. Set Alerts

    You can set alerts for tracking stock movements on your demat account. It also helps in buying or selling stocks automatically at predefined prices.


What Securities I can Hold on my Demat Account?

You can hold stocks, mutual funds, IPO, NCDs, bond, government securities, gold ETFs and Preference shares etc., in your demat account.


How to Open Demat Account

  1. Select the stockbroker with whom you want to open a demat account. The demat account opening services are provided by stockbrokers registered with NSDL and CDSL. The demat accounts are managed by central depositories. The stockbrokers only play the role of an intermediary between the customers and the central depository.
  2. Fill the account opening form and submit the photocopy of the required documents along with the form. You will also need the passport-size photo, bank account and PAN card details.
  3. The stockbroker will provide a form mentioning all the rules, T&C and demat account charges. You have to sign the form to enter into an agreement with depository participant in the depository. You will also receive a copy of the agreement and the schedule of charges levied in the process.
  4. After that, in-person verification will be carried out. A contact person from the depository participant will contact you to verify the contact details provided by you in the form.
  5. You have to pay fees like account opening fees, maintenance fees, and transaction fee to manage the account effectively. A demat account can be opened with zero account opening fees and no AMC demat account as well with some brokers.

Who can open a Demat Account?

  1. Both minors and adults are eligible to open demat account online. Although, for the minor, the parents or a legal guardian needs to be appointed who will be handling the account until he attains 18. As the minor attains 18, the stockbroker will approach for KYC(Know Your Customer) details and open a new account.
  2. You must have a PAN card (minor and major) to open a demat account.

Documents Required To Open Demat Account

In addition to a PAN card and Bank account details (a cancelled cheque for capturing MICR), you are also required to provide some other documents for address and identification proofs along with latest passport size photos. Although, you only need to attach photocopies. Here is the documents list you can use as an address proof and identity proof.

Address Proof:

  • Passports, Ration cards, driver's license, voter ID card, registered lease or sale agreement of residence, flat maintenance bill, and insurance copy.
  • Electricity bills, telephone bill (only landline), gas bill, and bank account statement/passbook- not older than 3 months.
  • Address proof issued by bank managers of scheduled commercial banks, scheduled co-operative bank or multinational foreign banks, gazetted officer/notary public/elected representatives to the legislative assembly or parliament.
  • Documents issued by any government or statutory authority.
  • An ID card with address issued by public sector undertakings, statutory/regulatory authorities, central/state government departments, scheduled commercial banks, colleges affiliated to universities, public financial institutions, and professional bodies like ICSI, ICAI, ICWAI, bar council etc. to the members.
  • Power of Attorney (POA) document provided by FII/sub-account to the Custodians.

Identity Proof:

  • PAN card, Aadhaar, Passport, Voter ID card, driving license.
  • An ID card with address issued by public sector undertakings, statutory/regulatory authorities, central/state government departments, scheduled commercial banks, colleges affiliated to universities, public financial institutions, and professional bodies like ICSI, ICAI, ICWAI, bar council etc., to the members.

How to Open Demat Account Online (Open Instant Demat Account)?

Many brokers these days offers online demat account opening service wherein you can open an account instantly. To avail such facility, you need to compulsorily have Aadhar card and it must be linked to your current mobile number for OTP verification.

  1. Choose the stockbroker with whom you want to open demat account online. But before that, it is wise to compare demat accounts provided by various stockbrokers and then choose the one that best meets your needs.
  2. Visit the website of the broker to open an online demat account. Very few brokers allow you to open only the demat account. Most brokers offer 2-in-1 (demat and trading account) or 3-in-1 account (demat, bank and trading account) facility.
  3. Fill the online form available on their website.
  4. Enter the required details.
  5. Pay the demat account opening fee and other charges.
  6. Upload the soft copies of required documents
  7. Verify through OTP

To make your search for the best demat account easier, we have compiled a list of stockbrokers who offer lifetime free demat account:

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