The stock market is one of the most preferred avenues for investments, and an intelligent investor would always want to make the best of it. According to the Securities and Exchange Board of India (SEBI) regulations, direct investment in Indian stock markets is not possible unless you have an online Demat account. A Demat account, short for Dematerialised account, allows you to hold your stock markets investments such as shares, bonds, IPOs (initial public offerings), mutual funds, exchange-traded funds (ETFs), and commodities in a secure digital repository.
The brokerages and almost all Indian banks and non-banking financial companies offer the facility of a Demat account. So, in a way, you are spoiled for choice. Like bank accounts, you should make an informed choice when picking the service provider – in this case, the depository participant or DP. A depository participant is an agent or the registered stockbroker of a depository. On the other hand, a depository is an institution that holds the securities of an investor through the DP.
Here are some of the points you should consider while opening a Demat account:
Why you need a Demat Account, and how it Benefits you?
As discussed earlier, a Demat account is a basic requirement for investing or trading in the Indian stock market. The Demat account facilitates dematerialisation, i.e., converting the securities from physical share certificates to the electronic form or vice versa. A Demat account is also a must for transferring shares or other assets electronically from one Demat account to the other. If someone wants to gift you shares, you can receive them only on your Demat account.
You can pledge the securities held in your Demat account as collateral to secure a loan from your bank.
Another advantage of having a Demat account is that you get the benefits linked to your securities directly. The dividends, interest or refunds provided by the corporates are transferred to the investors through their Demat accounts. Similarly, corporate actions such as stock split, rights offer shares or bonus issues are updated in the shareholders’ Demat accounts.
Reputation of Depository Participant
Your association with the DP you pick at the time of opening a Demat account could last years or maybe decades, so you should exercise due diligence before finalising the DP. When you open a Demat account, choose a trustworthy DP that has a proven track record of honouring its commitments. Avoid DPs which have serious service-related complaints or regulatory investigations pending against them.
Quality and Range of Services
Select a depository participant that can ensure high-quality services. A good DP will provide quick dematerialisation of physical shares into electronic shares and vice versa. Similarly, your DP should be able to credit corporate actions or decisions related to your shares into your Demat account automatically. The quality of services can also be gauged by how you DP deals with customer complaints and issues like pledge and lien. You should choose a platform that allows you to invest in a wide range of financial products from stocks, derivatives, mutual funds, government bonds, gold investment, fixed income products, and the National Pension Scheme.
Technology and Cybersecurity
Technology is key to the smooth functioning of your Demat account transactions. State-of-the-art technology can ensure speedy and flawless transactions. Similarly, your DP must protect your Demat account with the highest levels of cybersecurity.
Same Broker for both Demat and Trading Accounts
If your depository participant and broker of trading account are different, you may face delays during transactions and subsequent financial consequences. So, it makes sense to have a Demat and trading account with one broker.
Similarly, the related activities of banking, broking and custody can only be quick and seamless if your DP, broker and bank are one.
Single or Joint Account?
You can open a Demat account either in a single name or joint holders’ name. In the case of a joint account, you can have one main holder and two joint holders.
Before opening a Demat account, you should decide if you want a single name account or a joint holders’ account.
An Account that Suits you
If you intend to trade heavily and use all kinds of services, you should go for the regular Demat account. If you are a small investor who does not invest regularly, you should opt for the Basic Services Demat account, also known as BSDA. The Basic Services Demat account has low maintenance and other costs.
The Non-Resident Indians (NRIs) are allowed to invest only through the repatriable Demat account or Non-repatriable Demat account.
The repatriable Demat account allows the transfer of wealth abroad. The NRIs who do not want to transfer the money abroad should opt for the non-repatriable Demat account.
Demat Maintenance Charges
If you scout for a suitable DP, you can save a lot on account opening, annual maintenance charges and transaction fees for specific trades. You will, however, have to ensure that while looking for a DP offering low charges, you are not choosing one that will give you trouble later. Thorough research can ensure that you pick the perfect DP.
ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai – 400020, India, Tel No : 022 – 2288 2460, 022 – 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose. The securities quoted are exemplary and are not recommendatory