In India, shares, and securities are held electronically in a dematerialised account, instead of the investor taking physical possession of share/debenture/bond certificates. A demat account is opened by the investor while registering with an investment broker or sub-broker. The demat account number is quoted for all the transactions to enable electronic settlements of trades to take place. Every shareholder will have a demat account for transacting shares. Access to the demat account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the demat account are automatically made once transactions are confirmed and completed.
Why hold a demat form?
With the opening of a large number of stock exchanges, and since a large number of companies came into being, there was a craving for buying stock, thereby causing an increase in holding stock portfolio in physical form, which became unmanageable in the long run. Also, there was a huge growth in software in the information technology sector. So, the government allowed SEBI, the regulator, to introduce the demat system in 1996 so that investors can hold huge stocks in their demat account in e-form without having to handle them in physical form.
What is a demat account and why it is required?
Shares and securities are held in dematerialised form in demat account. It is mandatory to have a demat account to carry out a transaction in the stock exchange. Once an account is opened, you can buy shares by visiting a broker either personally or online. This feature helps prevent problems such as loss, forgery, or theft of the certificates and makes the process of buying and selling securities much more efficient.
How to open a demat account?
You need to get in touch with a registered depository participant (DP) to open a demat account. It is just like a bank or a broker. You can get a list of registered DPs from NSDL or CDSL websites, then download or collect an account opening form from the registered DP's office or website. It usually takes a week or two to open your account. It is important to add a nominee while applying for demat account. You can also open a demat account with banks. However, banks have the option of opening an account with any branch while some have a set of selected branches.
To know more about a demat account, the KYC norms, and charges for opening a demat account, get the latest digital copy of Consumer VOICE magazine.