What is Demat Account ? How does Demat Account Works?

What is Demat Account?

Demat account is the account that should be started to buy or sell shares in the stock market. A Demat Account is an account that allows investors to hold their shares in an electronic form. Stocks in Demat account remain in dematerialized form.
Dematerialization is the process of converting physical shares into electronic format. The demat account number is quoted for all transactions to enable electronic settlements of trades to take place. So a demat account is a must for trading and investing.
Demat account functions like a bank account, where you hold your money and respective entries are done in bank passbook. In a similar form, securities too are held in electronic form and are debited or credited accordingly. A demat account can be opened with no balance of shares. You can have a zero balance in your account.

Why should you have a Demat Account?

It is difficult to hold shares in physical forms because it involves a lot of paperwork, long process and risk of fake shares. So, for simple and seamless trading and investing, Demat account is a must to trade in India’s stock exchanges.
Although the Securities and Exchange Board of India (SEBI). A demat account holds the certificates of financial instruments like shares, bonds, government securities, mutual funds etc. It involves the process of converting physical shares into electronic form and credited to investor’s demat account.

How does Online Demat Account work?

At present, there are two depositories viz. National Securities Depository Limited   (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.
The depositories don’t directly interact with the customers who purchase and sell shares. Rather, they provide their services like keeping of share certificates in electronic forms through another set of institutions called depository participants (DP).
A Depository Participant (DP) is an agent of the depository. It is through this agent that the depository interfaces with the investor and provides depository services. Depository participant functions are provided by diverse institutions recognized by the SEBI.

The documents which are required for opening a demat account
  • PAN Card
  • Bank Account Details
  • Proof of Identity
  • A recent passport size photograph
  • Proof of Residence (acceptable documents includes electricity bill, phone bill, ration card, driving license etc.)            
Types of brokers to open Demat Account.
There are two types of brokers to open a Demat Account.
Full-Service Brokers– Full-service brokers who provide advisory and trading facilities in stocks, commodities, and currencies. These brokers charge commission in percentage terms on the total amount of trade clients execute. Full-service brokers operate out of many offices and branches across the country, which clients can visit in case of any query. ICICIDirect, Kotak Security, HDFC Security, Sharekhan, Motilal Oswal, India Infoline are some of the full-service brokers.
Discount Brokers– Discount brokers just provide a trading platform to investors but no advisory. Discount brokers charge low brokerageDiscount brokers offer low brokerage, high speed and the state-of-the-art execution platform for trading in stocks, commodities and currency derivatives. Over the last few years, discount brokers have established themselves in the market and are giving
a competition to full-service brokers who have been in the industry for quite a long timeZerodha, Upstox, Trade Smart Online, Pro Stocks are some of the discount brokers.

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