What is a demat account?

If you’re a recent entrant into securities trading, you may not have heard of the pre-demat account era - a time when shares and securities were held ‘physically’ - in the form of certificates and sheets of paper. Imagine that - millions of reams of paper spread across hundreds of thousands of investors holding onto their stocks.

Definition Of Demat Account

Courtesy the internet and of course, computers - we’ve migrated to a paperless era - the demat era. Instead of having to deal with obnoxious paperwork, investors now hold their stocks (or mutual funds and Exchange Traded Funds (ETFs)) in an electronic form - in a demat account.

Objectives Of Demat Account

Consider this account as the equivalent to a bank account, which holds your money. This account similarly holds your securities. Shares and stocks are transferred electronically to your account.

India began the transition to the dematerialized system in 1996. The Depository Act was passed in the same year and allowed for the setting up of depositories (like the NSDL and CDSL) that would hold such accounts. The NSDL (National Securities Depository Limited) came up in the same year and allowed for India’s first dematerialized accounts on par with global standards.

The National Stock Exchange was the first fully automated stock exchange in India. It began operations in 1994, and shortly after, in 1996, share trading in demat forms commenced. Demat holdings is now how the entire country conducts its securities transactions.

Objectives Of Demat Account

Did You Know?

The National Stock Exchange was the first fully automated stock exchange in India. NSE started in 1994. Demat share trading started in 1996.

How to open a demat account

Online Demat Account Registrations In an increasingly Internet-dependent world, the traditional process of submitting paper forms is seeing a decline. Now, customers can opendemat account online without having to go through all the tedious form filling, simply by agreeing to an eKYC from online brokerages. Stoxkart verifies your data using your Aadhaar card. It’s all paperless!

Here’s the traditional way to open your account:

Documents required for demat account

The “demat” is a short form dematerialized account. It’s the securities equivalent of your bank account, holding your financial instruments like bonds, shares, mutual funds, government securities and exchange-traded funds (ETFs). It’s called so because it holds all of them in a dematerialized or electronic format. You as an investor (or a shareholder) have the advantage of holding shares in electronic form rather than physical form. Hence, there are few governments approved documents required for your demat account.

Documents required to Open demat Account

Fields that are to be filled in the demat account form:

Procedure for opening a demat account

Armed with these documents, you’re only one step away from opening a demat account. Choose your broker after having compared them based on factors such as customer service, account charges, and user experience.

Depending on the format you’re storing these documents in (paper or electronic), you can choose between 2 paths on completing this process.

Demat account opening procedure

If you’re looking to buy securities (like shares, mutual funds or ETFs) online, a dematerialized account is absolutely essential. Apart from the obvious benefits it offers (it’s cheaper and faster), it’s also a requirement when you wish to register yourself with any brokerage.

How to open a demat account

Before you get started on the demat account opening procedure, select your broker. This choice could depend on a variety of factors - such as brokerage fees/charges (more on this below), the platform’s / user interface, and its customer service.

In today’s digital world, the way you apply for your account matters. Your broker is the one who’ll help you open a demat account in the easiest way possible. Is it the traditional method involving paper forms? Or the new-age Aadhaar-based paperless online method?

We’ll lay them out here for you and let you figure out what’s easier.

Steps to open a demat account

The online account opening method :-

In today’s digital world, there really shouldn’t be any reason for you to be filling out physical forms when almost the entirety of your information can now be stored digitally. Fortunately, some brokers have the online processing part figured out. Customers can sign up and complete the registration process online. As long as you have an Aadhaar card with your mobile number linked to it, you’re good to go!

That should be it. Your demat account should now be created.

Traditional/offline account opening process

You’ll also receive additional confidential data - such as a Login ID and key for accessing online portals and placing trades. Keep in mind that these transactions are likely to attract charges. You might incur some charges for using certain portals.

Demat account charges

There are multiple sorts of account charges you’re likely to come across - both during the time when you hunt for your preferred broker and when you’ve completed your registration process. Primarily, these charges can be classified into 3 types:

Account Opening Fees is the fees your broker will collect for the whole process of registering your demat account. Not all brokers charge this fee, so you’re likely to come across a few where you would not be paying any such fees. Some online brokers might charge a nominal account opening fee to trade on different segments.

Annual Maintenance Fee is usually a prepaid amount that your broker collects to keep your account active throughout the year. While these charges are usually nominal (Rs 300 - 800 for the year), many brokers in the industry have now begun to charge zero fees here as well. The race to provide traders with the best rates and services has led to some intense competition in the brokerage industry landscape.

Transaction Fees refer to the charges your broker will levy for moving (debiting and crediting) your stocks or other securities to and from your dematerialized account. This can vary wildly across brokers depending on their target audience.

We charge minimal demat and trading account opening fees of Rs 300 + GST (For Equity a/c). An Annual Maintenance Fee of the same amount also applies to the account.

Stoxkart continues to keep costs low with the Transaction Fees as well - charging Rs 15.5 + GST(including CDSL’s depository charges) - significantly lower than large traditional broking firms.

While discount brokerages charge low account opening fees and brokerage, that’s not to say they cut down on services. For example, it is entirely possible to open an account using the traditional paper method on Stoxkart as well. Head over to the forms section and download the demat account opening form. You can choose the segments you want to trade on while opening your account. Fill out the forms, attach the required documents, and send them over via courier to this address:

11/6B, Shanti Chamber, Pusa Road, Delhi-110005.

If you see the merits of a convenient and online Aadhaar-based registration, you’re welcome to get started with the online demat account opening.

Eligibility criteria to open a demat account

The enormous growth we’re witnessing in our economy finds an obvious indicator in the stock markets. Presently, after understanding the dynamics of the share markets, mutual funds and more, an increasing number of people seem to be more inclined to invest big in these markets.

But can everyone jump in? Only if they have a dematerialized account.

It is important to know if you’re eligible to open a demat account in the first place.

How does a Demat account work?

A dematerialized account holds all your securities (shares, commodities, ETFs etc) in an electronic form. You cannot trade in the stock market without one. Let’s get the basics out of the way first. Here is a list of things to understand the working of this account:

Did You Know?

CDSL was set up in 1999 to help manage the rush of demat account registrations that the NDSL was dealing with.

Eligibility Criteria

CDSL was set up in 1999 to help manage the rush of demat account registrations that the NDSL was dealing with.

Documents required for a demat account

To be eligible for a dematerialized account; in addition to your PAN card, you must provide a few more documents for identification and address proofs along with your latest photographs. Only photocopies of the documents are required for submission. However, the originals will be required for verification.

Demat and trading account charges

Investing and trading have proven themselves to be extremely popular, super reliable methods to generate wealth and financial security. But of course, there are no free lunches in this world! Setting yourself up to trade and invest in securities comes at some cost, and these costs are passed on to the customers by brokerages and other service firms.

It’s important, in such scenarios, to have a crystal clear idea of the basic requirements, and your costs before plunging into investments and trading.

Get the detailed understanding of What is a demat account? and What is a trading account?

Demat account charges

You’re likely to run into plenty of fees and charges when you start investing in the stock market. Some of these charges are levied during your transactions, while others are generally charged on an annual basis. These charges vary from one broker to another. So choosing your broker is a very important decision!

There are mainly 5 types of charges that are levied on the account holder:

Trading account charges

A trading account also has some costs associated with it. These charges are based on the number of transactions done through the account. These charges vary from one firm to another.

There are mainly 3 types of trading account charges:

The difference between traditional and discount brokers

You’re likely to come across two different kinds of brokerage firms when you decide to start investing in the stock market - the traditional brokers and the discount brokers.

Full-Service / Traditional brokers

Full-service brokers, or traditional brokers, provide a bunch of add-on services apart from offering you the ability to trade on all sorts of securities (stocks, commodities, and currency). These usually include advisory services, research, asset management, retirement planning and investment banking. They also allow for a broader range of trading options - such as forex, mutual funds, pension plans, insurances, bonds, IPOs and FDs. Since you are getting personalized services, they come with significantly high operating costs. This could eat up a decent chunk out of your profits in the long run.

Discount brokers

Discount brokers, also known as budget brokers - are rapidly gaining in popularity. While they offer significantly lower brokerage rates, high-speed trading in stocks, commodities, and forex. These brokers won't offer you trading advice, so if you believe in your decisions and research, a discount broker is an obviously better choice. Budget brokers are ideal for a fast-paced trader who wants to place orders in a timely manner. Apart from being affordable budget brokers also offer strong and latest trading platforms that make your trading life easier.

Clearly, both these accounts are essential for everyone looking to trade and invest in securities. Now, with the new-age Aadhaar based online registrations, opening an account is easier (and cheaper) than ever.

Difference between demat account and trading account

Are you considering to invest (or trade) in the stock market? If you’ve been following our guides, you might know that a demat account and a trading account are essential for trading and investing in securities. A common issue, however, is the average investor does not realize exactly what the differences between a demat and a trading account are.

Demat Account vs. Trading Account

Now, let us note down some points that bring out the major differences between a trading and a demat account.

How does trading take place?

Once the process of opening both demat and a trading account is complete, the question that arises is that how to trade with these accounts? Once the account is opened, the account holder receives a client ID and password to login to the trading portal using these credentials.

The trader needs to transfer money from his bank account to trading account. When stocks are purchased, they get added to the demat account and the amount that goes towards their purchase gets debited from the trading account. In case stocks are sold, they are debited from the demat account and the money is credited to the trading account.

Basically, a trading account acts as a link between a bank account and a dematerialized account. Therefore, many banks have started offering three in one packaged accounts, where the holder will simultaneously get the benefits of all the three account. The charges levied on such packages are usually expensive. Which is why discount brokers such as Stoxkart have stepped in to fill in an increasingly common need for many investors.

What is a Demat Account?

A demat account is an account to store your shares, bonds, government securities and mutual funds in electronic form. To know more read our above linked article.

What is a trading account?

A trading account is, in simple terms - a platform to facilitate transactions in shares/securities/stocks for investors. To know more read our above-linked article.

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