The concept of Demat Account was introduced in the late ’90s by the NSDL (National Securities Depository Limited). It has been more than two decades since this service was kick-started and is still running successfully in the Indian market. The purpose of Demat Accounts is to convert physical shareholdings certificates into electronic form in order to facilitate online trading in the stock market. All these accounts are centrally regulated by the NSDL and CDSL (Central Depository Services Limited).
As per the latest reports, there are around 12 lakh investors who opened a Demat Account in March’20 and April’20 with the CDSL. These huge numbers are enough to reflect how rapidly the market is growing. However, there are still many investors who are conflicted about its utility and importance.
Investors come up with a lot of general queries and questions regarding the working of Demat Accounts. Some of the frequently asked questions are:
No, the NSDL and CDSL are the two major depositories of India who are liable to facilitate the service of holding the data of the Demat Accounts. For opening one, you need to contact a Depository Participant (DP) who works as intermediaries between the two. There are plenty of DPs in India that offer unique benefits and services to their customers. You should recognize your investment needs and then find the right match.
A Demat Account can be opened in the name of a minor as well as an adult if document requirements are fulfilled. The Indian stock market is open to all which is why there is no age limit set for opening the account. However, you must possess a PAN (Permanent Account Number) card and an Aadhar card for completing the e-KYC process. The account opening process of a minor is as simple as that of an adult.
There are three types of Demat Accounts, they are:
Type of Demat Account
Features
Other Requirement
Regular
It is for the citizens of India who reside in the country.
Personal Bank account
Repatriable
It is for the NRIs (Non-Resident Indians) who hold citizenship of India. The funds of this account are repatriable which makes it more feasible.
NRE account
Non-Repatriable
It is also for the NRIs but the funds of this account is not repatriable. It is ideal for those who are temporarily residing in another country.
NRO/ NRE account
There are many non-banking financial entities, stockbrokers, banks and other financial institutions that play the role of Depository Participants in India. Since the performance of DPs keeps fluctuating, it is better to define the best one on the scale of its services. So, you should thoroughly analyze the market, go through the suitable options, make a rational comparison and then come to the conclusion of which is the best.
Reports reveal that there are 278 Depository Participants authorized by the NSDL and over 590 are registered with CDSL. Thus, as a wise investor, you should judge the best one out of these hundreds of DPs depending upon their services that compliment his needs.
Most of the Depository Participants provide a free Demat Account facility. That is, there is no charge for opening the account. However, there are specific service charges and maintenance fees that every investor has to pay for uninterrupted services. The most common charges include:
● AMC (Annual Maintenance Charge) It will be charged by your DP for providing the maintenance service of your Demat Account. It usually varies between Rs 300 and Rs 800 per year depending upon the terms laid by the DP. ● Custodian Fees The amount of these fees will vary depending upon the total number of securities you are holding in your account. It is charged for providing you security facilities for better and reliable trading experience. ● Transaction Costs For every share or bond certificate that you will dematerialize using your Demat account, a transaction cost is charged by the DP. This is also applicable for rematerialization, redemption, security transfers, etc. ● Postal charges You would also be charged a postal fee for every document that would be physically sent to your address. Apart from these, there might be any other charges which vary from one DP to another. So, you must consult the concerned authorities before opening a Demat Account. Also, there are many DPs who charge minimal fees. Hence, it is advisable to compare all of them before opening a Demat Account.
● AMC (Annual Maintenance Charge)
It will be charged by your DP for providing the maintenance service of your Demat Account. It usually varies between Rs 300 and Rs 800 per year depending upon the terms laid by the DP.
● Custodian Fees
The amount of these fees will vary depending upon the total number of securities you are holding in your account. It is charged for providing you security facilities for better and reliable trading experience.
● Transaction Costs
For every share or bond certificate that you will dematerialize using your Demat account, a transaction cost is charged by the DP. This is also applicable for rematerialization, redemption, security transfers, etc.
● Postal charges
You would also be charged a postal fee for every document that would be physically sent to your address. Apart from these, there might be any other charges which vary from one DP to another. So, you must consult the concerned authorities before opening a Demat Account. Also, there are many DPs who charge minimal fees. Hence, it is advisable to compare all of them before opening a Demat Account.
No, a Demat Account is only for holding your shares and security certificates electronically. In order to sell or buy bonds or securities in the Exchanges, you need to have a trading account. You need to consult your DP and then link your trading account with the Demat account for facilitating smooth transactions. Most of the Depository Participants provide the services of both the accounts which makes the trading process easier.
Yes, you can have more than one Demat account. There are no restrictions on the number of account holdings. In fact, there are many investors who open more than one Demat Account. However, whether you need to open multiple accounts with the same DP or not depends on you.
The emergence of the dematerialization process has changed the face of the Indian stock market. The convenience and feasibility it offers are commendable and incompatible too. All the issues related to holding share certificates physically have been resolved with the use of Demat Accounts. Better security, easy access, and increased reliance are the reason that there are over 36 million active Demat Account holders in India. The system has revolutionized trading of stocks by facilitating an easy medium of storing the holdings. If you have still not savored this experience as an investor, you should immediately give it a try!
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