A demat (dematerialization) account maintains investments that you buy in an electronic. Just how a savings bank account holds your money, a demat account holds certificates of investments such as shares, bonds, government securities, mutual funds and exchange-traded funds in an electronic form.
Savings accounts are opened with a bank, similarly, demat account is opened with a depository. A depository is a place which maintains ownership records and enables trading of securities.
To open a demat account follow these 3 steps:
Approach a depository participant (DP) who is an agent of the depository and fill up an account opening form with them.
You can check out this list containing details such as name, number, and email address of all the DPs in India:
Most banks are also DP’s so you can open a demat account with your bank itself.
Download or collect the account opening forms from the respective DP’s office or website. Fill them up and sign wherever necessary. Along with these forms submit a photocopy of your PAN Card, address proof, and bank statement.
After this, you’ll need to sign an agreement with the DP that states your duties as a trader and also the duties of the DP. A copy of this agreement along with a schedule of all the charges of the depository will be given to you. Keep this copy safely for future use.
The DP will open an account and give you your demat account number (a.k.a beneficial owner identification number BO ID). Every time you buy securities they will be credited to your demat account and when you sell securities they will be debited from your demat account.
P.S.- Since your demat account is linked to your bank account any refunds, dividends, interest payments, important notices all come as per the details you’ve given when you first opened your demat account. So if you’ve changed your bank account or postal address remember to update this information with your demat account.
To start investing in shares along with a demat account you also need to open a trading account. A trading account acts as a link between your savings account and your demat account. Buying and selling of shares happen through the trading account and the shares are stored in the demat account. To make it easy for the investor in most cases the trading account is opened when you open a demat account.
Now that you know how to open a demat account go ahead and open one to start trading! For any more questions on demat, comment and let us know.