Demat Account: Meaning, Benefits, Types

If you're new to trading stocks and shares, you've probably heard you need a "Demat account," but what exactly is it? Simply put, a Demat account is like a bank account for your shares. A Demat account holds your shares and securities electronically, making it easy and safe to trade online. This guide will walk you through a Demat account, explain why it’s important for investors, and show you how to set one up to start trading. 

Demat Account Meaning

A Demat account, short for “dematerialised account,” helps you hold your investments electronically. Before the digital age, shares and securities were given as paper certificates. Carrying and keeping these papers safe was hard and risky—they could be lost, stolen, or damaged. To solve these problems, demat accounts were introduced.

A Demat account holds your shares, bonds, and other investments. It lets you buy, sell, and track these investments easily and securely on your computer or smartphone. Additionally, it helps maintain a clear record of all transactions, which can be accessed anytime, helping you stay organised in your investment journey.

Demat Account Basics

Understanding the basics of a demat account is key to using it effectively. Here’s what you need to know to get started:

• What You Can Store: A demat account can hold various investments, not just shares. You can also keep bonds, mutual funds, government securities, and exchange-traded funds in it. 
• Costs Involved: Maintaining a demat account involves some fees. These include opening charges, annual maintenance, and transaction fees whenever you buy or sell shares.
• Safety Features: Demat accounts have several safety features like secure login processes, automatic logouts, and transaction alerts. These measures help prevent unauthorised access and ensure your assets are well-protected.

Demat Participants

Demat Participants help in managing a Demat account. These participants are officially registered and approved by the stock market regulators. There are mainly two types of demat participants:

• Depository: This is the main storage area for all electronic securities. In India, for example, the two main depositories are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). They ensure that all electronic securities records are kept safely.
• Depository Participants (DPs): These are agents or intermediaries between the depository and you, the investor. Think of them as bank branches. Like you visit your nearest bank branch to deposit or withdraw money, you interact with a depository participant to manage your shares and securities. These could be banks, stockbrokers, or financial institutions authorised to offer demat services.

What is the Dematerialisation Demat Process?

Dematerialisation, often called “demat,” converts physical shares and securities into electronic format. Before this process was available, buying and selling shares involved lots of paperwork, which was slow and sometimes unsafe. Here’s how dematerialisation simplifies everything:

Step 1: Opening a Demat Account

First, you must open a demat account through a depository participant (DP). You will be required to provide some personal details and identification documents.

Step 2: Handing Over Physical Certificates

If you already own physical shares, you must give them to your DP. You will complete a Dematerialisation Request Form (DRF) and submit your physical share certificates. This form tells your DP and the depository that you want to convert your physical shares into electronic ones.

Step 3: Verification

Once your DP receives your form and certificates, they will check everything to ensure it’s in order. They will then send these documents to the company whose shares you hold through the depository.

Step 4: Conversion to Electronic Form

The company will verify the certificates. If all details are correct, they will cancel the physical certificates and update your ownership details in their records to show that the shares are now in electronic form.

Step 5: Reviewing Your Demat Account

After the company confirms the conversion, the depository updates this information, and your demat account will now show these shares electronically. You can view these anytime, just like checking your bank balance online.

Benefits Of Dematerialisation

Dematerialisation offers many advantages that make investing easier and safer. Here are some of the main benefits:

• Safety and Security: Unlike paper certificates, which can be lost, stolen, or damaged, electronic shares are safely stored in your demat account. This means you need not worry about keeping your investments secure.

• Quick Transactions: Trading shares becomes much faster when you use a demat account. You can buy or sell shares almost instantly, which is impossible with physical certificates. This speed can help you take advantage of market conditions more quickly.

• Convenience: Managing your investments electronically means you can access your demat account from anywhere with an internet connection.

• Accuracy and Transparency: Electronic records are updated automatically and are less prone to errors than manual entries of physical certificates, increasing the accuracy of your investment records. You also get regular statements from your DP, helping you keep track of your transactions and balances.

• Loan Facility: With demat accounts, you can also easily pledge your securities to get loans. Banks and financial institutions can quickly verify your holdings electronically, making securing loans against your shares easier.

Features of a Demat Account

A Demat account has several key features that make it an essential tool for modern investors. Understanding these features will help you make the most out of your investments:

• Electronic Storage: Your Demat account stores all your securities electronically, eliminating the need for physical certificates.
• Easy Transfer of Shares: Whether you’re buying or selling, the transactions through a Demat account are quick and happen electronically, which speeds up the process and reduces paperwork.
• Automatic Updates: Whenever you buy or sell securities, your demat account updates automatically. This includes adjustments after dividends, splits, and mergers, ensuring your investment records are always current and accurate.
• Linking with Bank Accounts: You can link your demat account to your bank account, making fund transfers seamless. This linkage facilitates the smooth flow of funds necessary for buying and selling securities.
• Corporate Benefits: If you own shares of a company stored in your demat account, any benefits like dividends, interest, or refunds are automatically credited to your account. This ensures that you receive all entitlements without any hassle.
• Nomination Facility: You can nominate someone to receive the securities in your demat account in case of your demise. This feature makes the transmission of assets simpler for your nominees.

How to Open a Demat Account?

Opening a demat account is a simple process, similar to opening a bank account. Here’s a step-by-step guide to help you get started:

Step 1: Choose a Depository Participant (DP)

First, you need to select a Depository Participant (DP). These can be banks, stockbrokers, or online investment platforms authorised to offer demat services. Compare their fees, services, and reputation to find the best suits your needs.

Step 2: Fill Out the Application Form

Once you choose a DP, you must fill out an application form. This form asks for your personal details, including your name, address, and contact information. You’ll also need to provide your financial information and investment experience.

Step 3: Submit Necessary Documents

You must submit copies of certain identity and address verification documents along with your application form.

Step 4: In-Person Verification (IPV)

Some DPs may require an In-Person Verification (IPV). This means someone from the DP’s office might meet you in person or do a video call to verify the authenticity of the documents you provided.

Step 5: Sign the Agreement

You will need to sign an agreement with your DP, which outlines the rights and duties of both parties. Be sure to read the agreement carefully before signing.

Step 6: Get Your Demat Account Details

Once your application is approved, the DP will open your demat account. You will receive a unique account number, the Beneficiary Owner Identity (BO ID). This ID is used to access and manage your demat account.

Step 7: Access Your Demat Account

Finally, you can access your demat account using the credentials provided by your DP. Most DPs offer online access, which allows you to manage your investments, view your holdings, and carry out transactions through their website or mobile app.

Types of Demat Account

When you open a demat account, it’s important to know that different types are available, each designed to meet specific needs. Here are the three main types of Demat accounts:

1. Regular Demat Account

Indian citizens use a regular demat account. It is the most common demat account for individuals who want to trade or invest in shares and securities. It holds all your investments electronically and allows you to manage them easily.

2. Repatriable Demat Account

If you are an Indian citizen living abroad or a Non-Resident Indian (NRI), you might choose a repatriable demat account. This account allows you to transfer money abroad from selling your investments. It must be linked to a Non-Resident External (NRE) bank account, which transfers money to and from India without restrictions.

3. Non-Repatriable Demat Account

This is another option for NRIs. Unlike the repatriable account, the non-repatriable demat account does not allow funds to be transferred abroad. It must be linked to a Non-Resident Ordinary (NRO) bank account, which manages income earned in India. You can still buy and sell shares with this account but not move the proceeds to a foreign country.

Document Required for Demat Account

Opening a demat account is similar to setting up a bank account, and it requires certain documents for identity verification and to fulfil legal requirements. Here’s a list of the common documents you will need:

1. Proof of Identity (POI)

You must provide a valid document that confirms your identity. This could include:

• PAN card (mandatory for all demat accounts)
• Aadhaar card
• Passport
• Voter ID card
• Driving licence

2. Proof of Address (POA)

A document is needed to verify your address. You can use any of the following:

• Aadhaar card
• Passport
• Voter ID card
• Recent utility bills (electricity, water, gas) that are not older than three months
• Bank statement or passbook with recent transactions

3. Proof of Income (for trading in derivatives)

If you plan to trade futures and options, you might need to provide proof of your financial health:

• Latest salary slip
• Income Tax Return (ITR) acknowledgement
• Bank statement for the last 6 months
• Net worth certificate from a certified accountant

4. Bank Account Details

You will need to provide details of your bank account, which is linked to your demat account, for seamless transactions:

• A cancelled cheque from your bank account bearing your name
• Bank account statement or passbook

6. In-Person Verification (IPV)

Some depository participants may require IPV. You would typically need to be physically present or available for a video call, during which your documents and identity are verified.

How to use Demat Account

Once your demat account is set up, using it is straightforward. Start by logging in to your account. Further, here’s a simple guide on how to effectively use your demat account for trading and managing securities:

• Viewing Your Holdings: Your demat account dashboard will typically show an overview of your current holdings, including stocks, bonds, and other securities. You can check the number of shares, current market value, and the purchase history. This helps you monitor your investments and make informed decisions.

• Buying Securities: To buy shares or other securities, you must link your demat account with a trading account. Once linked, you can place orders through your trading platform. The securities you buy will typically be credited to your demat account within two business days after the transaction.

• Selling Securities: When you want to sell your holdings, you can place sell orders through your trading account. The securities will be debited from your demat account once the sale is executed. The proceeds from the sale will be deposited into your linked bank account.

• Pledging Securities: If you need to secure a loan, you can pledge the securities in your demat account as collateral. Contact your DP to initiate the pledging process. The securities can be unpledged once the loan conditions are met.

Why open a Demat Account With BFSL?

BFSL (Brokerage Firm Securities Limited) is a well-established brokerage firm offering various financial services, including trading and demat accounts. Known for its reliability and comprehensive service offerings, BFSL caters to both beginner and experienced investors.

Opening a demat account with BFSL is beneficial for several reasons. 

• Firstly, their platform is user-friendly and secure, making it ideal for new investors. 
• BFSL provides competitive pricing with low transaction fees, which can help you save money while investing. 
• They also offer excellent customer support and are available 24/7 to assist you with any inquiries or issues.

Additionally, BFSL stands out for its educational resources and investment advice to match your financial goals and market trends. Whether looking to trade actively or invest passively, BFSL’s advanced technology facilitates quick trading and real-time market data access, enhancing your decision-making process. With a wide range of investment options available, BFSL makes it easier to diversify your portfolio, catering to different risk appetites and investment strategies.

Various Types of Trading Accounts

When you begin investing in the stock market, you’ll encounter different types of trading accounts and demat accounts, each suited to specific investment needs and objectives. Understanding these can help you choose the right one for your financial goals.

• Cash Account: This is the most basic type of trading account, where you must pay the full amount of your securities purchase upfront. You cannot borrow funds from the broker to buy stocks; you must have the funds available in your account.

• Margin Account: Unlike cash accounts, margin accounts allow you to borrow money from the broker to buy stocks. This means you can buy more stocks than you could with just your available funds. However, this comes with higher risk, including the potential to lose more money than invested if the stock prices fall.

• Discretionary Account: In this type of account, you allow your broker or a designated financial manager to buy and sell securities without prior approval for each transaction. This is suitable for those who do not have the time to manage their investments actively.

• Online Trading Account: Specifically designed for online traders, this account facilitates buying and selling securities via an online platform, offering quick transaction execution and real-time market data.

How Do You Know Your Demat Account Number?

Detailed Steps to Find Your Demat Account Number

• Welcome Kit and Account Opening Emails: Upon opening your demat account, your depository participant (DP), such as BFSL, will send you a welcome kit via postal mail or email containing essential account information. This will typically include your unique demat account number, a combination of the DP ID and your Client ID. Check all initial communication for this information.

• DP’s Online Portal or Mobile App: Access your account through your DP’s secure online or mobile app. After logging in, navigate to the dashboard or the profile/account details section, where your demat account number will be prominently displayed.

• Monthly Account Statements: Your DP sends monthly statements detailing your transactions and holdings via email or postal mail. Your demat account number is listed on these statements, often at the top or in the header.

• Contact Customer Service: If you can’t locate your demat account number through the methods mentioned above, you can contact your DP’s customer service for assistance. For BFSL, you can reach them at 80-66673333, 080-41575234/35, or email bfsl@bfsl.co.in or enquiry@bfsl.co.in. Be prepared to verify your identity with them to access your account information securely.

• Visit a Branch: If you prefer face-to-face assistance, visit your nearest BFSL branch. You can find the closest branch location on their website under the “Contact Us” section. Ensure you carry a valid ID for verification purposes.

Demat Account For Minors

A minor demat account is specifically designed for individuals under 18. This type of account allows minors to hold securities such as stocks and bonds under the supervision of their legal guardians or parents. Here’s what you need to know about managing a minor demat account:

Guidelines and Restrictions

• Trading Restrictions: While minors can hold securities in a demat account, they are not allowed to trade until they reach the age of majority. Once the minor turns 18, the account can be converted to a regular demat account, and full trading privileges are granted.

• Role of the Guardian: The guardian manages the account on behalf of the minor and is responsible for any decisions and actions taken regarding the securities held in the account.

• Tax Considerations: The guardian usually taxes any income generated from investments in a minor demat account until the minor reaches adulthood.

Conversion to Regular Account

Upon reaching the age of majority, the minor must submit a new application and updated KYC documents to the DP to convert the account into a regular demat account. This process typically involves:

• Providing proof of age.
• Updating the KYC details.
• Signing a new agreement under the minor’s name.

How to Choose the Best Demat account

Choosing the best Demat account involves assessing several factors to align with your investment goals. Compare the fees and services various depository participants (DPs) offer, including account maintenance charges and transaction fees. Evaluate their trading platforms’ user-friendliness and technological robustness, especially if frequent trading is anticipated. Additionally, the quality of customer support, availability of additional features like research reports, and the DP’s regulatory compliance with bodies like SEBI should be considered. Reading reviews and considering recommendations can also provide valuable insights into the reliability and efficiency of the service. Ultimately, the right demat account should offer a balance of cost, convenience, and comprehensive service to support your investment strategy effectively.

Demat Account Charges

When choosing a Demat account, understanding its various associated charges is crucial. Here’s an overview of common demat account charges:

Transfer Money From Demat Account to Your Bank Account

Transferring money from your demat account to your bank account is managed through your linked trading account. Here’s a step-by-step guide to help you complete the transfer efficiently:

• Log In: To access your trading account linked to your demat account, navigate to the ‘Funds’ or ‘Accounts’ section.

• Select Withdrawal: Choose the option to withdraw funds under ‘Funds’.

• Enter Amount: Specify how much money you want to transfer under “Withdraw.”

• Bank Details and Authentication: Input your linked bank account details and confirm by entering your trading password.

• Complete Transfer: Submit the request. Funds will be reflected in your bank account within one to three business days.

Transfer Shares from One Demat Account to Another

Transferring shares from one Demat account to another can be done online or offline. Here’s a step-by-step guide to help you with the process:

Offline Transfer:

• Obtain the Delivery Instruction Slip (DIS) from your current stockbroker.
• Fill in the necessary details on the DIS, including the Beneficiary Owner ID (BO ID) for the current and new brokers and the International Securities Identification Number (ISIN) for each share.
• Select the appropriate transfer mode: choose off-market if both accounts are with the same depository or inter-depository if they are with different ones.
• After completing the DIS, sign it and submit it to your current broker. A nominal fee may be charged for the transfer.

Online Transfer:

• Log in to the depository’s website (NSDL or CDSL), where your current Demat account is held.
• Register your other Demat account details on the portal.
• Follow the instructions provided on the portal to initiate the transfer.