How to Open Demat Account? - Complete Guide for Beginners
If you’re curious about the stock market and are looking to invest in stocks, the first step is to create a dematerialized account or a 'Demat' account. No matter your ultimate financial objective, a Demat account is a prerequisite for conducting any transactions in the share market. This article highlights what a Demat account is and how to open one.
What is a Demat account?
The year 1996 revolutionized the Indian stock market when the Securities and the Exchange Board of India introduced Demat account, replacing physical trading where investors had to be present at the stock exchanges to buy and sell securities. ‘Demat’ refers to dematerialization, a process by which physical securities are converted into electronic format. Thus, a trader can use a Demat account to hold, transfer, and transact securities without the hassles of dealing with physical securities.
Demat accounts, or dematerialized accounts, allow investors to hold shares of a company electronically. A Demat account enables them to digitally hold dematerialized securities such as stocks, mutual funds, exchange-traded funds (ETFs), bonds, etc. When an investor places an order for a stock, his shares are credited to his Demat account. Similarly, his Demat account is debited whenever he sells his shares.
One can open a Demat Account with a depository participant, or DP, which could be a bank, a stockbroker, or a non-banking financial company (NBFC). DPs are representative of the two central depositories in India, the NSDL or CDSL, which serve as the link between the customer and the brokerage firm providing the Demat service. All Demat accounts are under the jurisdiction of the Security and Exchange Board of India (SEBI).
How to open a Demat account?
It is essential as an investor to know how to open Demat account and use it to build and grow their wealth. Thanks to the internet and the digitalization of fintech processes, it is now possible to open Demat account with a few clicks while sitting in the comfort of your home. Check out the eligibility, documents required, and steps to follow to open a Demat account.
Eligibility
Any individual over 18 years of age can open a Demat and trading account digitally. Mandatory documents for the same are PAN, bank account, identity, and address proofs.
Documents required for opening a Demat account
- PAN card
- Passport size photo
- A copy of Signature
- Proof of Identity: Document to verify investor’s identity. Voter's ID, Aadhaar card, PAN card, Passport, Driving Licence, or any other document notified by the central government
- Proof of Address: Investor’s proof of address in India. There can be some overlap between address proof and ID proof documents. Ration cards, Electricity bills, Telephone bills, Water bills, Property Tax receipts, Passport, Bank passbook, Voter's ID, or Aadhaar card
- Proof of Bank: Investor needs to show proof of bank account that he wishes to connect with his Demat account. Canceled cheque with the bank’s IFSC code and MICR
- Proof of Income: The income proof is only mandatory in cases where the trader intends to trade in derivatives of assets and in the currency markets. It is not required when he is only going to participate in the equity segment, whether delivery or intraday. Photocopy of the Income Tax Return (ITR), recent salary slip, bank A/C statement of the current bank, or canceled personalized cheque.
Armed with these documents, you’re only one step away from opening a Demat account
Step-by-step procedure to open a Demat account online
Opening a Demat account is simple and can be completed in a few steps.
Step 1 - Choose your depository participant: Select a depository participant (DP) with whom you want to open your Demat account. Study the different brokerage plans offered and compare them with the rates, services offered, and other factors such as customer service, user experience, etc.
Step 2 - Provide basic details and add bank details: After selecting a DP, fill out the account opening form available on DP’s website. Below are the fields that are to be filled-
- Type of account (Ordinary, NRI, NRI-Non-Repatriable, or HUF)
- Account holder information (name, address, telephone no., email id, etc.)
- Second holder details
- Guardian details
- Extra information for NRIs (foreign address, RBI reference no. and date)
- Bank details (Account no. , account holder’s name, etc.)
- Financial details (PAN number)
- Photograph
- Declaration (Holder’s name and signature)
Step 3 - Document upload: Upload all the required documents as mentioned.
Step 4 - In-person verification: In-person verification is carried out by the DP or broker through a digital call or video recording of the individual as per instructions provided on the screen.
Step 5 - E-sign: The form can next be electronically signed using the Aadhaar authentication process through OTP. As Aadhaar is linked to a mobile number, e-sign is a convenient and secure method that reduces paperwork.
Step 6 - Form submission: The individual can now review the form and submit it. Once the submitted information, scanned documents, and IPV are in order, the Demat account is opened.
The Demat account can also be opened offline. The offline procedure will be very similar to all the steps mentioned above. Investors will need to fill out a paper account opening form instead of an electronic form. An in-person verification to check that your details are true and valid may be completed after submitting the paper form.
In either of the processes, you’ll also come across the Depository Participant-Investor agreement, which contains details such as the charges you’ll incur while holding the dematerialized account, the rules and regulations, terms and conditions, and also the duties of the broker and your rights as an investor. Don’t forget to go through it before submitting your form.
Things to note after opening a Demat account
Once the Demat account is opened, make sure to get the Demat Account number, DP ID, and POA number. Demat Account number is also known as Beneficiary Owner Identity (BOID) and it is 16 characters. It will be used in all future transactions you conduct. And, the Power of Attorney agreement (POA) permits the stockbroker to operate your account as per the given instructions.
You will also receive a unique login ID and password for online access to your Demat account. So, what are you waiting for? Log into your Demat account and start investing!