A demat account, also known as a dematerialization account, is an account that safely holds all the investments of an investor, such as shares, securities, bonds, and mutual funds in digital form, for easy and swift online trading. With the help of a Demat account, the physical share certificates are converted into digital form. These shares and securities are easily accessible digitally, unlike those physical share certificates which were susceptible to theft or loss. In dematerialization, all the physical share certificates are dematerialized into digital form by filling out the Demat Requisition Form (DRF).
Importance of Demat Account:
- With the help of a Demat account, shares are easily and safely stored. The investor need not worry about the shares getting forged or lost or stolen.
- A huge number of shares can be stored, without any hassle, and all the details of these shares can be accessed digitally, without any flaw, whenever needed.
- Transactions are quick and effortless. The held shares can be quickly transferred, during online trading.
- Apart from shares, the Demat account can also hold other investments such as bonds, mutual funds, and securities.
- Details about bonuses and splits are spontaneously updated in your Demat account, keeping you well informed about the changes in the company’s shares you are investing in.
Difference between Demat and Trading Account:
Both Demat and Trading Account are crucial to share trading. However, the main difference between a Demat and a trading account is that a Demat account is like a bank account that stores the shares that are bought by the investor. These shares can be sold further. While a trading account enables an investor to buy or sell shares in the stock market.
How to Open a Demat Account:
- Choose a Depository Participant (DP): A Depository Participant (DP) can be any bank or broker or financial provider, catering to your needs and criteria, depending on annual charges and other charges. So choose a depository participant accordingly.
- Submit the Demat Account Opening form: To open a Demat account, fill out the online Demat account opening form that is available on your DP’s website.
- Submit the KYC (Know Your Customer) form: After filling out the demat account opening form, fill out the KYC form, by providing the KYC details. The documents that are required for the verification of KYC are proof of identity such as a PAN card, address proof, bank account statement, and a few passport-sized photographs.
- Get yourself verified for KYC: In-Person Verification Process (IVP) is needed to verify your records. However, nowadays, IVP services are also available online.
- Sign the agreement: After the verification of KYC, sign the agreement that mentions all the rules and responsibilities relevant to the Demat account you wish to open. Once it is signed, submit it to your DP, and get it authorized by the concerned person. A copy of the agreement will be handed over to you.
- Get your BO ID: After the agreement is submitted, your Demat account application will be processed. Then you will get a Beneficial Owner Identification Number (BO ID). You can use this unique identification number to access your Demat account.
All the documents must be self-attested and the original documents should be presented if asked for.
To open a Demat account is not a tedious task. It can be accomplished with just a minimum number of documents. Opening a Demat account is mandatory for those who wish to invest in the stock market world. With the help of a Demat account, holding and transferring shares and securities is just a click away. It is an efficient process for all kinds of investment transactions.