A Demat Account is a bit like a bank account for your share certificates and other securities that are held in an electronic format. Demat Account is short for dematerialisation account and makes the process of holding investments like shares, bonds, government securities, Mutual Funds, Insurance and ETFs easier, doing away the hassles of physical handling and maintenance of paper shares and related documents.

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To understand Demat Account meaning, let’s use an example. Let’s say you want to purchase the shares of Company X. When you buy those shares, they will have to be transferred in your name. In earlier times, you got physical shares certificates from the exchange with your name on it. This, as you can imagine, involved tonnes of paperwork. Each time a share was bought and sold, a certificate had to be created. To do away with this paperwork, India introduced the Demat Account system in 1996 for trades on NSE.

Today, there’s no paperwork involved, and physical certificates are no longer issued. So when you buy shares of Company X, all you get is an entry in electronic form, in your Demat Account. So this is what is Demat Account.

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Today if you want to trade/invest in the stock market (NSE & BSE) or other securities, having a Demat Account is a must. Your Demat Account number is compulsory for electronic settlements of the trades and transactions you do.

How to get Demat Account

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Now that you know what is Demat Account let’s see how you can go about getting one. When you open a Demat Account, you are opening one with a central depository like the National Securities Depository Ltd (NSDL) or the Central Depository Services Ltd (CSDL). These depositories appoint agents called Depository Participants (DP), who act as intermediaries between themselves and investors. Your broker or Bank , like for instance SBI Bank or trading Member , is a DP (Depository Participant), with which you can open a Demat Account. Stockbrokers and financial institutions too are DPs, and you can open a Demat Account with them also.

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Just like a bank account holds money, a Demat Account holds your investments in an electronic form, which is easily accessible with a laptop or a smart device and Internet. All you need to have is the unique login ID and password to access it. However, unlike a bank account, your Demat Account need not have a ‘minimum balance’ of any sort.You can check the websites of any of the depositories to get a list of DPs . The choice of a DP should ideally depend on its annual charges.

Note that you have more than one Demat Account, but not with the same DP. So one PAN card can be linked to multiple Demat and Trading Accounts.

 

Demat Account details

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Once your Demat Account is opened, make sure you get the following details from your DP:

• Demat Account number: It is known as ‘beneficiary ID’ if under CDSL. It is a mix of 16 characters.

• DP ID: The ID is given to the depository participant. This ID makes a part of your Demat Account number.

• POA number: This is part of the Power of Attorney agreement, where an investor permits the stockbroker to operate his/her account as per the given instructions.

You will also receive a unique login ID and password to your Demat and Trading Accounts for online access.

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Demat and Trading Accounts

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A Demat Account is usually accompanied by a trading account, which is required for buying and selling shares on the stock market.  Sometimes, people are confused between Demat and Trading Accounts. They are not the same. A Demat Account contains the details of the shares and other securities in your name. To purchase and sell shares, you need to open a Trading Account. Many banks and brokers offer Trading Accounts with online trading facilities, which makes it easier for ordinary investors to participate in the stock market.

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Types of Demat Accounts

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Now that we’ve understood Demat Account definition let’s look at the types of Demat Account. There are mainly three types:

• Regular Demat Account: This is for Indian citizens who reside in the country.

• Repatriable Demat Account: This kind of Demat Account is for non-resident Indians (NRIs), which enables money to be transferred abroad. However, this type of Demat Account needs to be linked to a NRE bank account.

• Non-Repatriable Demat Account: This again is for the NRIs, but with this type of Demat Account, fund transfer abroad is not possible. Also, it has to be linked to an NRO bank account.

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Advantages of Dmat Account

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• No Stamp duty on transfer of securities.

• Immediate and fast transfer of securities.

• Elimination of 'Bad Deliveries'.

• Elimination of risk by loss, theft, mutilation etc.

• Faster settlement and disbursement of Corporate benefits like Bonus, Rights, Dividends etc.

• Elimination of mismatch in Bank Accounts and Address.

• Convenient Nomination facilities.

• Convenient Transmission formalities in case of death of a holder.

• No TDS deduction for demat securities.

• Demat account information and statement regularly sent to the customer.

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