What is Demat Account?

Welcome to the ultimate guide that will demystify the world of Demat accounts! Whether a beginner investor or a seasoned trader, understanding the ins and outs of Demat accounts is crucial for navigating the modern financial landscape. One must have wondered, "What is a Demat account,” or pondered over the meaning of terms like "dematerialization"? Don't worry because we've got it all covered.

In this comprehensive blog, we will unravel the mysteries behind Demat account , and provide one with everything they need to know about what is a Demat account, what is the use of it including the benefits of demat account and how to open a Demat account. So, read on!

What is Demat Account?

Demat accounts help investors hold shares and securities in an electronic format.

In 1996, the National Securities Depository Limited (NSDL) introduced Demat accounts, ushering in a new era of electronic storage for shares and securities.

Besides ensuring secure storage of shares, Demat accounts enable easy access to holdings, thus facilitating smooth transactions. Understanding what a Demat account is will help individuals optimize investments and manage assets in the electronic realm.

Overview of Demat Account Meaning

For stocks and other securities owned in electronic form, a Demat account can serve as a type of virtual bank account. A Demat account eliminates the need for investors to physically handle and store physical shares and accompanying paperwork for investments such as stocks, bonds, government securities, mutual funds, insurance, and Exchange-Traded Funds (ETFs).

Consider the following illustration of a Demat account. Suppose Mr X has decided to invest in Company Y and wants to buy some of its shares. It will be necessary for Mr X to have the shares transferred to his name once they have been purchased.

Shares used to be issued in the form of tangible certificates bearing the owner's name and address until recently. This process required a mountain of documentation. Moreover, it was necessary to generate a new certificate whenever shares were purchased or sold. The Demat account system, implemented in India for National Stock Exchange transactions since 1996, was designed to eliminate the need for such documentation.

Those who wish to trade or invest in securities on a stock market or other markets in a day can do so using their Demat account. For trades and transactions to be settled electronically, a Demat account number is typically required.

How Does a Demat Account Work?

In most aspects, trading using a Demat account is identical to trading in person. To begin trading, one must first place an order in their trading account. Therefore, it is necessary to link trading and Demat accounts. When a trader submits an order, the market executes the trade.

Demat account details, current share prices, and stock availability are all verified before an order is fully processed. Once the operation is complete, the stock will be shown in the trader's account balances.

A shareholder must provide a delivery instruction letter specifying the shares they wish to sell before they may do so. The cost of the shares is deducted from the trading account and the cash value is credited.

Here's a quick walkthrough of how a demat account works:

• When one intends to buy or sell a specific share, they must log in to their Demat and Trading account, which is interconnected with their bank account.
• Once a 'buy' or 'sell' request is placed in the trading account, the Depository Participant promptly forwards it to the stock exchange.
• If the order is a 'buy', the stock exchange searches for a seller willing to sell shares at a matching price. Once a match is found, the clearance houses debit the corresponding shares from the seller's Demat Account and credit them to the buyer's Demat Account.

Importance of Demat Account

Now that one has a fair idea of what is a demat account, it's time to look at some key points highlighting the importance of Demat accounts:

• Quick Access: A Demat account provides convenient access to all the investments and statements through net banking, ensuring easy tracking and management.
• Hassle-free Dematerialization: With the assistance of a depository participant (DP), physical share certificates can be converted into electronic form and vice versa, making the process of dematerialization seamless.
• Effortless Share Transfers: Transfer of shares has become significantly easier and time-saving with the utilization of Demat accounts, eliminating the need for physical paperwork and delays.
• Enhanced Liquidity: Demat accounts have simplified the process of selling shares, making it faster and more convenient to convert shares into cash, thereby improving liquidity.

What is Dematerialisation?

Now, let's dive deep into the question of what is dematerialisation and understand its significance in the financial world.

Dematerialisation is the process of converting physical share certificates and debentures into an electronic format. Through Dematerialisation, shares undergo direct conversion into a digital format, securely stored within Demat accounts. The primary objective of Dematerialisation is to eliminate the need for physical share certificates.

To initiate the Dematerialisation of securities, individuals are required to approach a Depository Participant (DP) to open a Demat account. DPs utilise the services of two major depositories. These include the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

What is DP ID?

Let's delve into the meaning of what is a DP ID and understand its functionality.

DP ID, short for Depository Participant ID, consists of the first eight digits and is assigned by the chosen broking firm or financial institution. The DP ID is used by depositories and participants during the conversion of physical shares to Demat, transferring shares between Demat accounts, or transferring funds from the Demat account to a bank account.

What is the Use of a Demat Account?

For those still wondering, what is the use of a Demat account, here are some quick answers:

• Demat accounts are run completely online. Hence, one can access them from any corner of the world.
• Demat accounts allow investors to hold various investments like bonds, equity shares or exchange-traded funds under one account.
• Demat accounts can be monitored easily from the comfort of one's home.
• Unlike physical trading, there are no additional costs like stamp duty, handling charges etc. involved.

Benefits of Demat Account

• No paper certificates

Demat Accounts eliminate the need for physical share certificates, reducing the risk of loss or damage.

• Easy storage

With a Demat Account, one can store and trade shares in any quantity, simplifying record-keeping.

• Convenient access

One can manage investments anytime, anywhere through a smartphone or laptop, making investing more accessible.

• Nomination facility

Demat Accounts offer a nomination feature, ensuring a smooth transfer of holdings and avoiding legal disputes in case of one's demise.

Types of Demat Account

Now that the blog has explored how Demat Account works, let's look at the types of Demat Accounts:

• Regular Demat Account - Designed for resident Indians.
• Repatriable Demat Account - Intended for non-resident Indians (NRIs) and allows the transfer of funds abroad. However, it must be linked to a Non-Residential External (NRE) bank account.
• Non-Repatriable Demat Account - While also meant for NRIs, in this case, funds cannot be transferred abroad. It must be linked to a Non-resident Ordinary (NRO) bank account.

What Is BSDA Account?

A Basic Service Demat Account (BSDA) is specifically designed for small investors who may not engage in regular or extensive trading of stocks, bonds, ETFs, mutual funds, and other securities.

The following conditions automatically qualify a Demat account as a Basic Service Demat Account (BSDA):

• Only one demat account is registered under a particular PAN across various brokers.
• The total value of holdings in the demat account is below ₹2,00,000/-.

How to Open a Demat Account?

Curious about how to open a demat account ? Let's explore the step-by-step process of opening one.

• Access the account opening form.
• Provide personal details, including name, email address, phone number, residential address, and PAN number.
• Add bank account details.
• Upload the necessary KYC documents for identity and address verification. One can also conduct an in-person verification by recording a brief video clip of themselves.
• Electronically sign the form using their Aadhar-linked mobile number.
• After the application is submitted, individuals will receive confirmation of the account opening, including login credentials.

Demat Account Opening Charges

While there is no Demat account opening charges , the following charges are levied once an account is opened and starts getting operated:

• Annual Maintenance Charges: Most firms require an annual maintenance charge for Demat accounts.
• Demat and Remat Charges: These charges are a percentage of the total value of shares bought or sold, covering digitisation or physical printing costs of securities.
• Custodian Fees: Depository partners impose custodian fees, either on a one-time or annual basis.

Difference Between Demat and Trading Account

Here are some key differences between a demat and a trading account :

Objective

A Demat account is used to hold shares in electronic format, providing a secure storage method for converted physical shares. On the other hand, a trading account is specifically used for buying and selling shares in stock markets. It acts as a link between the bank account and the Demat account, facilitating trading activities.

Use

A Demat account primarily focuses on the storage and safekeeping of shares, and a trading account allows one to actively participate in stock market transactions.

How to Transfer Shares From One Demat Account to Another

CDSL offers Electronic Access to Securities Information and Execution of Secured Transaction (EASIEST), an online transfer method for shares between Demat Accounts.

• Log in to the CDSL website.
• Choose 'Register Online' and select EASIEST.
• Fill in the required details.
• Send a copy to your Depository Participant.
• The Central Depository will verify the information.
• Within 1-2 days, you'll receive login credentials.
• Log in, access the broker list, and transfer shares.

Why Choose Bank of Baroda Demat Account?

Bank of Baroda is an ideal choice for a Demat account due to its affordability with Zero opening charges, online trading convenience, and enhanced security. By eliminating physical document handling, the risk of loss or falsification is eradicated. Stock trading becomes safer and easier, with faster transaction processing. This efficient service ensures swift and immediate stock trading without waiting in queues. Choose Bank of Baroda for a cost-effective, secure, and hassle-free Demat account experience.

Conclusion

In conclusion, understanding what is a demat account and how a Demat account works and its significance in the world of investments is crucial for navigating the modern financial landscape. It provides a secure and convenient platform for holding shares and securities electronically. Additionally, understanding what is DP ID essential for seamless transactions and account management. Open a Demat account with the Bank of Baroda today for a trusted and reliable banking experience.

FAQs on What is Demat Account

1. Who is eligible to open a demat account?

Regardless of age, individuals can open a stock account by submitting their PAN card, ID and address proofs, and completing a KYC form.

2. Is a Demat account safe?

Demat accounts prioritise security. Each demat account is overseen by either the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL). These depositories ensure the safety of one's holdings by sending alert messages, emails, and notifications for all transactions conducted.

3. Is the Demat account free?

BOB does not charge any fees for opening an account, but there is an annual maintenance fee one needs to pay.

4. Is it possible to open a joined demat account?

Yes, a joint Demat account can be opened. However, all account holders must collectively authorise all transactions.

5. What is a demat account identification number?

The Demat account number is a unique 16-digit numerical code assigned to investors upon opening their Demat account. This serves as their financial identity for trading and investment activities in the stock market.