Why do you need to open a Demat account?
Want to invest in shares and stocks, ride the market?
Although mutual funds are among the most popular ways to invest in shares and equities, many investors prefer to deal in shares and stocks directly. And they do it through their demat accounts.
What is a demat account?
Earlier, trading and investing in shares in the stock market meant that you owned the actual physical shares. But dematerialisation of shares – the change from paper shares to electronic accounts – ‘demat”, changed all that. Demat accounts are where equity and other securities are held by investors, ending the hassle of signature mismatches, inadequate delivery systems, storing share certificates, losing share certificates, and wasted time. Secure ownership and fast, and smooth transactions are among the benefits of Demat accounts.
Since demat accounts came in 1997, the investing public has been steadily dematerialising shares. Today, all transactions of shares are done only in the demat mode through debits or credits to a demat account. And the number of new demat accounts has hit record highs this past year, testifying to the popularity of this investment vehicle.
So if you are considering investing directly in the share market, you must consider opening an online brokerage or Demat account.
Where to Open a Demat Account?
To invest online and open a Demat account you need a Depository Participant (DP) – which could be a brokerage or your bank. Brokerages, of course, are specialised institutions dealing in these transactions. You open the account by registering online at any of the leading broking firms.
While you open a demat account with the DP, the actual shares are held in custody by one of the national depositories National Securities Depository Ltd (NSDL) and the Central Depository Services India Ltd (CDSL). Also remember, a Demat account can only hold shares in custody, to buy and sell shares. To invest, you will need a trading account.
There are two types of broking firms — discount brokers or service brokers. The two differ primarily in the range of products and services that they provide. A discount broker typically acts as a functionary, carrying out trades as per an investor’s instructions, and offers equity and derivatives as products.
Service brokers, on the other hand, in addition to the above, offer research and advisory services to investors, and a broader range of investing options that include initial public offerings (IPOs), mutual funds, and insurance, taking away much of the hard work of research and continuously tracking how your shares are doing or how the market is performing. Most leading broking firms such as Angel Broking are service brokers.
How to Choose Your demat Partner
The choice of a broking firm depends on your preference – if you are looking for a seamless and secure way to deal in shares, a reputed service brokerage firm like Angel Broking is ideal.
For first-time investors, identifying the right broking firm requires some research and planning. Some basic questions need to be answered by the broking firm’s website:
- How long has the broking firm been in business? Does it have a reputation for trust?
- What services do they provide? What kind of broking firm is best suited to your needs and preferences?
- Are they accessible online and via mobile apps?
- How competitive are their fees? What kinds of cost or discounts do they have for first-time investors?
- Are there proper linkages between your Demat account and your bank account?
- Is there a common depository facility – does the broking firm offer a single-window to trade more than shares, such as bonds and government securities or mutual funds?
- Does the broking firm offer good analysis, market insight and real-time information and alerts?
Opening a demat Account Online
Once you have answered these questions, opening a Demat account online with a leading broking firm is quite simple.
- You have to fill and submit your broking firm’s account opening form along with KYC details: Date of Birth, PAN card, Email Address and Bank Account.
- The DP’s KYC form will have a DP-Investor agreement. This spells out the rules and regulations, investor rights and obligations. You must read the fine print in detail.
- Typically, the firm will send you an OTP on your registered mobile number. Details of your Demat account are sent to you on your registered mail address.
- Many firms will require in-person-verification (IVP), this can be done by personally visiting a branch or a have a DP representative will visit your place.
- You get a demat number once your documents are verified
Investing in shares is one way to secure your financial future provided you have the basics covered. The basics start with opening a Demat account with a DP – bank or broking firm. Identifying the right DP, knowing where to open your Demat account – where to park your trust and your money is the key.