Demat and trading account are the terms used frequently in the world of the stock market. As of January 31, 2021, data from the National Securities Depository Ltd (NSDL) shows that there are around 2,10,97,183 Investor Accounts.
As per Securities and Exchange Board of India (SEBI) data, 6.3 million (63 lahks) new Demat accounts have been opened by newbie investors in FY2020 because of the easy account opening process and its popularity during the pandemic lockdown.
Because of increasing demand, stockbrokers are offering the best features at the minimum possible charges. You need not pay account maintenance charges for the first year of opening an account. Before opening an online trading account, you should take a look at the following contexts to understand the basics.
Dematerialization
Dematerialization is the process of transforming physical shares into electronic forms. It is an easy way to manage financial securities and keep them safe. It provides better accessibility to your securities to monitor and track seamlessly.
Central Depository
In India, NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Ltd) facilitate the storage of Dematerialized shares that are traded by investors on stock exchanges. These two depositories provide a license to Depository Participants (DPs) cum stockbrokers to provide trading and Demat account facility to investors.
Depository Participants
A depository participant (DP) is an intermediary who acts as a link between investors and a central depository. Every DP should be registered with any of these two central depositories. They provide services to hold and transact securities defined by the apex trading and investment regulatory body SEBI, India.
Steps to Open Online Demat Account
Opening a Demat account is an easy online process. Following is the step-by-step guide explaining the online Demat and trading account opening process:
Step 1: Choose your DP
Choose the DP to open a Demat account as per your needs. There are Depository Participants who are also registered stockbrokers; hence they offer a Demat account. There are mainly two types of stockbrokers –
Full-service brokers: They offer individual advisory services and recommendations to investors. If you do not want to spend a lot of time researching companies and the stock market, a full-service broker is ideal for the investor. Their service fee is quite high.
Full-service brokers are more expensive and are not recommended for beginners.
Discount brokers: You need to make your own investing and trading decisions without their assistance. However, you can get advice on trading for a fee. Moreover, they provide an online trading account facility with analysis tools. If you can spend enough time on stock research, these tools will be helpful in your investing journey.
You need to choose a broker as per your investing and trading requirements.
Step 2: Fill in and Submit the Demat Account Form
Once you have selected your DP, go to its website and fill in the Demat account opening form. You can open both an online trading account and a Demat account together. Most brokers offer the account opening facility for free.
Step 3: Upload KYC Documents
You need to fulfill Know Your Customer (KYC) norms. Scan your KYC documents – your identity proof, address proof, bank account details, and income proof and upload them in the form.
Step 4: Verification Process
After completing KYC norms, you can submit your form for the verification process called ‘In-Person Verification’ (IPV). Most DPs offer IPV services online through a video call.
That’s it. Now your DP will approve your application and assign you a unique Beneficial Owner ID Number (BO ID) to access your Demat account.
The Bottom Line
In the digital environment, it is very convenient to understand the Demat account and how the stock market works. You do not need to worry about fake deliveries.
You get relief from the tiresome managing of physical shares since you can hold and access multiple securities from anywhere. Just open your Demat account and start investing.