Online stock broking companies and demat service providers have seen an exponential increase in customers opening demat accounts during the pandemic. The pandemic has brought to the fore the importance of not only saving your money, but investing your money in order to make the most out of it, reducing your opportunity costs as much as possible. The phrase ‘make your money work for you’ seems to be a motto adopted by new age traders and investors looking to venture out into the world of stocks and trading.
If you’re looking to start your investing journey, the first thing you will require is a proverbial ticket to enter the stock market, a demat account. A demat account is either registered with the Central depository services (CDSL) or National Securities Depository Ltd (NSDL), which are in turn regulated by SEBI, and is exclusive to its owner. Any shares bought and deposited in the account are the property of the owner of the account. In order to open a demat account, you have to do so through a DP, who facilitates your access to the stock market. In today’s digital age, there exists a sea of options as far as DPs (and brokers) go, which could make the process of singling out a good demat service provide for you, an arduous task. In this article, let’s take a look at how you should choose from the top demat account provider, which is a good demat service provider for you.
How to select a good demat service provider for you.
While the final decision on which demat service provider you opt for is based on personal preference, there are some points to keep in mind that could better equip you to make a more informed purchase decision. Let’s take a look at some of these.
1. Define your goals.
The market for DPs and brokers is almost oversaturated in today’s age. Given the number of commodities that are traded, the DPs catering to these needs continue to further their specialization in the services they offer. For instance, if you are looking to just start your career in the stock market and want to learn the ins and outs of the market but have a relatively small initial investment amount, then you might opt to go for a demat service provider that is a discount broker. This means minimal costs, and almost all activities are DIY. On the other hand, if you are making significant income that you want to invest but do not want to dedicate too much time to it, you might opt for a full service demat service provider as well. There also exist more specialized DPs and brokers such as those that focus on mutual funds, and even DPs that focus exclusively on trading gold. Deciding what your goals are given the resources you have at hand is an important first step to selecting the right demat service provider for you.
2. Your broker and DP needn’t be the same.
This point separates the term ‘demat service provider’ from a broker. While both might be the same entity, it is also possible for you to employ a different broker and different DP. a demat service provider merely does as the name suggests, providing you with access to opening a demat account. Your ‘broker’ or financial advisor could be a different entity, meaning you use your DP to access your demat account, but consult your broker on the actions carried out on that account. While this has certain benefits such as potentially reduced costs, it also comes at the cost of reduced convenience.
3. Consider the charges.
The objective of trading through a demat account is to generate returns or profits. This means that your revenue is higher than your cost. One cost we often forget to consider while selecting a good demat service provider, is the cost of the account itself. Different demat service providers offer different services and subsequently have different costs. The trick here is to research not one, but multiple top demat account providers in order to compare them and pick one that offers the most services you are looking for. For instance, if you are looking to day trade, you might want to choose a demat service provider that has lower transaction fees. If you wish to hold your investments for the long term however, a good demat service provider for you might be one that offers lower account maintenance charges (AMC).
4. Online or offline?
In the case of most people, the choice here is relatively obvious, yet worth exploring. In previous times, individuals had to interact with the stock market physically through paper receipts certificates etc. In today’s day and age however, most demat service providers, and certainly the top demat account providers allow online access to their services. Meaning you can now trade on the stock market right from the comfort of your home.
5. Account closure clauses.
While it might seem odd at first, one of the most important things you should consider while choosing a good demat service provider for you, is the process of closing an account that the company has. Some time or another, we are bound to make mistakes, or want to reverse a decision we took. It is upto us to enable ourselves to be able to roll back that decision without difficulty. Look carefully at the demat service provider’s terms and conditions for account closure clauses. While the DP might make the process of opening a demat account a matter of seconds, the closure process might be much more drawn out, in order to act as a deterrent to you closing the account. Multiple demat accounts, especially if left unused could rack up significant charges and are exposed to misuse.
While most in the market would agree on a somewhat defined list of top demat account providers available in the market today, there is no single good demat service provider. The best demat service provider for you will depend on what your long and short term investment goals are, what you are choosing to invest in, in addition to what degree. Regardless, there are some things you could look out for that we have broken down in this article that could help you make more informed decisions, taking all factors into account.