Earlier it was common in India to own sheaf of share documents, but that was before the electronic revolution. Primarily, demat is known as a dematerialized account that helps you to transform your papers into electronic form. You won’t have to carry share documents as they would be available on the computer screen once you click. Without a demat account you cannot trade in the stock market.
To get started in stock trading, you need to open a demat account at either a bank that is authorized to open a demat account, various financial institutions and some top drawer stock broking houses that are registered directly with the major stock exchanges. The broking houses are a conduit between you and the CDSL or the NSDL. You are the investor in this case as you would be buying and selling stocks. Many large broking houses are also known as depository participants or DP.
Your identity in the Indian stock market
A demat account works just like a social security number, but its scope is limited only to the trading in shares. By opening a demat account you are identified as a trader and all transactions made by you, are routed through the demat account for storage in electronic form. You may buy or sell shares and at the click of a mouse your account can be accessed and your holdings known. To begin with, you have to apply to a DP that could also be a bank or a financial institution apart from a broking house.
To open a demat account you need to provide proof of address, copy of the PAN card that is required for all income tax purposes, photographs, demat forms filled out and also income tax returns to prove that you are a genuine tax payer. You need to open an account with the bank as a primary step to opening a demat account. It could be a savings and a demat account where the profits or losses from share trading can be credited or debited. You have to pay nominal charges toward your demat account.
Charges are not the same with all DP’s and they can change over a period of time. Primarily, you would be required to pay an account opening free, a transaction fee and an annual maintenance fee. Once the demat account is opened, the next step is very simple. You can get along with share trading instantly.
To avoid scams
The need for a demat account arose when several scams broke out in the stock market. You cannot trade in different names anymore. Many NRI – non resident Indian investors were found to conceal their share trading profits by operating under different names, while some big players even managed to tune the market to their advantage. There were unnecessary bull runs or bearish tendencies in the market as large lots were sold.
Small investors suffered immensely as they lost much of their savings in the process. With the opening of the NRI demat account, any previously held share that is on paper can be dematerialized and any shareholding in your name would be reflected.
Whenever you want or according to the system of the DP, you would get a statement of accounts that would reflect your current position. After the demat account is opened, for the purposes of share trading at the stock exchange, you would be given a unique beneficiary owner identity number that would serve as a reference for all share transactions. You need the delivery slips for selling shares and you can collect them from your DP. By opening a demat account, you bring out in the open all that you hold and every information regarding your holdings is clear and open.
For opening a dmat account you must visit the best NRI broker: