You have dealt with physical shares for so long. Now that you have decided to operate through a demat account, how do you go about it?
It’s important to know that a demat account is exactly like a bank account where your securities are held in the electronic form. Shares are bought and held in this account during online trading. Any transaction through this account is cost-effective and hassle-free thanks to the absence of tiresome processes involving stamp papers.
Depositories like NSDL and CDSL provide the demat account service through stock brokers, or intermediaries, or depository participants. The charges of such an account depend on the terms and conditions placed by the depository and the stock broker. They also depend on the volume of securities being held in the account.
Read more: Documents required for a demat account
Suppose you are keen on electronic trading. But before you take the plunge, you should be aware of how to use demat account.
You must first register with an investment broker or sub-broker to open a demat account. Once the account is opened, you will get a transaction password.
Depositories are institutions that hold a pool of shares that have been pre-verified in the electronic form. There are currently two depositories in India—the National Securities Depositories Limited (NSDL) and the Central Depository Services Limited (CDSL).
You must select a depository participant (DP) who would act as an agent to the depository. Next, you should download an account-opening form from a DP’s website and fill it out. You also need certain KYC documents like identity proof (PAN card, Aadhaar card, Passport etc.), address proof (passport, Aadhaar card etc.), and a passport-size photograph. These must be submitted to the nearest branch office of the DP or the DP’s head office.
Upon receipt of the documents, the DP will send an official to perform an in-person verification.
Once the in-person verification is successfully completed, you will receive an account number or client ID. Using this along with the transaction password, you can access your demat account. You may use your demat account to trade shares, derivatives, and stocks. You can also use it as a storehouse for your stock portfolio.
For buying or selling shares, you need a trading account and stock broker alongside your demat account. Your trading account will show the history of trading related to a specific account.
Read more: How to close a demat account
After the trade execution and confirmation from the stock exchange, it will take T+2 days for it to show up in your demat account. Your stock broker is responsible for transferring the shares to your demat account after payment has been made for them.
You must read through the terms and conditions when you open a demat account. Be careful about giving the power of attorney (POA) to a broker. The POA gives the broker the authority to issue debit/credit instructions from your demat account. Moreover, the broker may have a clause in the demat agreement that it does not need to provide debit instruction slips (DIS) to the account holder. So, you must go through the fine print of your demat agreement. Scrutinise all the clauses mentioned before giving the POA to a broker.
The debit instruction slip (DIS) is just like a cheque book. Every time you sell or transfer shares, it has recorded in the DIS. So, you must keep the DIS in safe custody.
You can open a demat account or even a trading account through Kotak Securities.
Read more: How to open a demat account
It is now mandatory for all investors to have a demat account if they wish to trade in the securities market. Since 5 December 2018, the Securities and Exchange Board of India (SEBI) has mandated that transfer of securities can no longer take place in the physical form.
However, when it comes to the trading of commodities, derivatives, and exchange-traded funds, you do not necessarily need a demat account.
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