How to open a demat account

A demat or 'dematerialised' account holds shares in electronic form, thus saving you the bother of holding shares in paper form. Possessing a demat account is now a prerequisite for stock market investments.

C. Rajalakshmi

Planning to put your money in the IPOs that are coming up? Want to invest in stocks? Then you would have to certainly open a demat account. A demat or 'dematerialised' account holds shares in electronic form, thus saving you the bother of holding shares in paper form. Possessing a demat account is now a prerequisite for stock market investments.

Demat services are provided by banks, financial institutions and stock broking houses. The broking houses in such cases also act as DPs (depository participants) intermediating between the depositories — CDSL or NSDL and the investor. To open a demat account, you have to make an application to a DP and submit required documents. Once you have a demat account to your name, you can open a trading account with a broker of your choice.

The shares bought and sold by you will be reflected in your demat account. Any previously held physical share can also be dematerialised and transferred to the account.

The DP, at regular intervals, would provide you with an account statement showing the balance of shares in your demat account and transactions during a period. The following steps would help you open a demat account:

Look out for a DP

There are several institutions that offer DP services. You have two options. Either you choose a bank/financial institution or a stock broker who could provide you the DP services as well. The factors that guide your selection should be the charges and locational convenience. The fees charged for DP services differ across the industry. Though the rates change, the charges normally go under the following heads:

Account opening fee

Annual maintenance fee

Transaction fee

Besides the above, depository participants also charge service tax as applicable. A bank or other DP may sometimes waive the initial account opening fees. If you choose a bank where you have been holding your savings account for long, then much of the paper work would get simpler and documentation will not take much time, as you are already known to the banker.

Get the documents in place

For opening a demat account one needs to provide a set of documents to the agent. They are:

Duly completed account opening form and passport size photos;

A copy of PAN card as proof of identity;

Personalised cheque/Copy of the bank passbook

A copy of passport/voter ID/ ration card as a proof of address

Signing of the DP-investor agreement.

On giving the above papers, the agent would complete the other formalities with the depository and facilitate opening of the account. You would then be given a unique account number (BO ID- Beneficiary Owner Identity), which would serve as a reference number for all further transactions. After that you, must also collect delivery instruction (DI) slips from the DP. A DI slip has to be filled and sent to the DP on every delivery (sale of shares) you make. DI slip is an instruction to the DP to debit your account and credit the broker's account with the specific stock.

Take note that the DI instruction has to reach the DP the very next day after the sale, failing which the securities won't reach the broker and hence the exchange. This could result in auction of the security. Suppose the exchange is able to procure those shares only at a higher price, then the resultant loss has to be borne by you, as investor. However, you could escape this irksome process of sending DIs, if you have your demat account as well with your stockbroker and give him a standing instruction (POA-Power of Attorney) for delivery of stocks that you sell.

So, this is it. Once you narrow down on a DP and get the documents ready, opening a demat account is as simple a process as that.

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