Every individual interested in the stock market must have heard about a Demat account and how important it is for online trading. But you should know what it exactly is. Let us elaborate on the Demat account in this article.
Demat Account Explanation
A demat account is commonly known as dematerialized account which helps in storing the stocks in a digital or electronic mode. Its primary purpose is to make online trading, i.e., buying and selling, smooth, convenient, and safe following the rules of SEBI (Securities and Exchange Board of India). It serves as an online store for all your investments in the stock market, whether it is stock, exchange-traded funds, mutual fund units, government and private bonds, or other debt instruments.
Whether you are a financial freak or just a frugal person, a demat account has become necessary for those who want to move towards the stock market for investments. It is a one-stop solution for the storage and maintenance of your securities. You can trade stocks as often or as rarely as you want.
Why do you need to open a Demat Account?
A demat account is the first requirement for online trading. No demat account means no stock trading. Since the stock exchanges have adopted electronic securities, there is no existence of paper-based securities. And you need a demat account to hold all your electronic securities.
- A demat account ensures the safe and smooth transit of shares.
- It allows you to trade a single share also. You need not put all your capital at risk at once.
- It supports Margin Trading Facility as SEBI allows trading against pledged demat securities.
- It is cost-effective to invest in the stock market as SEBI has eliminated stamp duty on the transfer of demat shares and account opening fees for a basic online demat account.
Steps to create a Demat Account
Now you know what is a demat account and what it is used for, let us explain how to open a Demat account.
The foremost step to create a Demat account would be to find a suitable broker. A broker can be a financial institution, NBFC, a bank, or an individual. Make sure you open a Demat account with a registered broker only.
You should have your Aadhaar Card, PAN Card, Proof of Residence, and Identity Proof to proceed with a demat account.
Here is the step by step guide to creating a demat account:
Step 1: List a few registered brokers. Compare their demat services and the cost of creating and maintaining a demat account. Most brokers offer a free demat account if your investments are limited to Rs two lakhs. You can open a basic demat account for free with all stockbrokers. If you need a regular demat account, you may have to pay a small amount of money for a demat account opening.
Step 2: Once you have selected a stockbroker, go through their official website and access the demat account opening form.
Step 3: Fill in your KYC details and upload your KYC documents. If you are opening a trading account also along with your demat account, you need to submit proof of your income also, i.e., salary slip, bank statements, etc.
Step 4: Submit your form for the further verification process.
You are done with the form submission. The broker will connect to you for the document verification process. You need to show them your original documents through video call or in-person, at the comfort of your home. Once the verification is done, you will have your demat account login credentials to start online trading.
Now you can apply for an IPO, invest in a mutual fund, stocks, bonds, etc. Do not forget about making thorough research before delving into the stock investments.
To conclude, the Demat account is a necessity if you are a person who dabbles in financial markets and trading, and the process of creating one is quick and easy.
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