Finance

Steps to open Demat account with Common Application Form

A Demat account, also known as a dematerialised account popularly, is a form of account used to hold, trade and transact shares and securities in electronic form. When trading in stocks and securities online, shares and securities are purchased and kept in a Demat account, and thereby facilitating an easy trade for the users. A Demat account can hold all forms on securities investments such as shares, exchange -funds, bonds government securities, and mutual funds in one single place.

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How Does a Demat Account Work?

Before undertaking an exercise of Demat account opening, one needs to know how a demat account work.

  • NSDL and CSDL, the depositories in India, hold all demat accounts in India. The Central depository holds individual account shareholding details.
  • Demat accounts act as a storage unit for shares, shock, securities and financial products bought and sold on exchanges. The demat accounts stores these securities from the period of purchase till the said stock or security is sold.
  • Each demat account has its own unique identification number or the UIN, which is required to be provided for all transactions.
  • The Depository Participants or the DPs provide individual demat accounts access CDSL and NSDL. Usually, brokers or banks act as a DP and serve as a linkage between individual investors and the central depository.
  • A demat account holds the portfolio of an investor and automatically updates the portfolio post any form of transaction.

How to Open a Demat Account?

Opening a Demat Account is a simple process, and many banks, brokerage firms and financial institutions also provide an option to investors, individuals and new account holders to open Demat account online.

Anyone can open a demat account by just following a few steps mentioned below.

  1. Selecting a Depository Participant

The investor is required to select a depository participant with whom they wish to open a demat account with. The depository participant usually is brokerage firms, financial institutions and banks who work as a bridge between the investors and the stock exchanges. The website of NSDL and CDSL have a list of all depository participant posted on their website.

  1. Filling and Submitting all the required Documentation

The investor is required to fill an account opening form and submit their KYC details along with the account opening form. The investor needs to provide their identity proof and address proof documents.

For Proof of identity, the account opening can submit any one of the following documents along with a PAN card.

  • Aadhar Card
  • Passport
  • Voter Identification
  • Driving License
  • Passport.
  • Photo-identity issued by any public sector undertaking, any statutory or regulatory body, state or central government institution, public financial institution, scheduled commercial banks etc.

For Proof of Address, the account opener can submit any one of the following documents.

  • Passport
  • Driving License
  • Aadhar Card.
  • Registered Leased Agreement
  • Bank account statement and/or passbooks which are not less than 3 months old.
  • Electricity, Telephone or Gas bills which are not less than 3 months old.
  • Photo-identity mentioning residential address issued by any public sector undertaking, any statutory or regulatory body, state or central government institution, public financial institution, scheduled commercial banks etc.
  1. Executing an Agreement/Contract.

After selecting a depository participant and filling in all the paperwork, the investor is required to sign an agreement or a contract with the depository participant. The agreement or the contract provides details and information to the investor regarding their rights and duties, responsibilities of the depository participant, schedule of charges related to various fees associated with opening, maintaining and operating a demat account.

It is essential for an investor to read the agreement properly before signing it.

  1. The opening of Demat Account and obtaining Demat account number

After completion of all the formalities and processing of your application, your Depository Participant opens a demat account and provide the customer with a demat account number, a Beneficial Owner Identification Number (BO ID).

Now the account holder can start buying, selling and storing/holding their stocks, shares and securities in their demat account.

  1. Open Demat account online

Now, many banks and broking firms allow investors and individuals to open Demat account online. Users just need to log on to the website of the Depository Participant, which may be a financial institution, bank or a broking firm. The individual needs to click on the apply open Demat account online and fill in an application form, upload their KYC documents, sign an online agreement and can start using their demat account in a matter of hours.

Why do Investors Need to Open a Demat Account

On June 8, 2018, SEBI issued a notification stating its intent of 100% dematerialisation of shares. As per the said SEBI notification, all share certificates held in physical form will be deemed as a worthless piece of paper if they are not converted into dematerialised form. Further share certificates held in physical form will not be allowed to be transferred, traded or exchanged after 5th December, unless the said stock and shares are converted into demat form. The share certificates held under the will of upon a shareholders death are exempt from this notification.

Advantages of using a Demat Account

  • Safe, Secure and Easy Holding of Shares.

Demat accounts hold all shares and securities bought from stock exchanges in electronic format in a single account, unlike previously, when people had to sort, file and securely store original share certificates to prevent any form of loss, theft or damage. Holders of physical share certificates can open Demat account online, convert the shares into dematerialised form and safely hold their shares, securities and stocks

  • Ease in transferability of Shares

Shares can be immediately transferred in the buyer’s name almost immediately the shares credited in the buyer’s demand account. Previously, when shares were held in physical forms as share certificates, original share certificates had to be sent to the registrar or the company to get transferred in the name of an individual and this process was used to take weeks and even months. Also, there was a risk of losing share certificate during this process, which has been eliminated by demat accounts.

Shareholders holding physical share certificates can open Demat account online and quickly transfer their shares in a matter of seconds.

  • Shares can be easily divided

Holders of physical share certificates can open Demat account online and buy, sell and trade in shares in any number they desire. Previously, when stocks were held in physical form as share certificates, investors were forced to buy, sell and trade shares in marketable lots of 50, 100, 200 shares, which made buying or selling shares in an odd quantity, like say buying 24 shares a challenging task for investors. Demat accounts have solved this issue by enabling investors to buy and sell shares in any number of share as they desire. Now investors can buy, sell or trade shares and securities in any divisible number as desired by an investor and is not restricted to lot size, i.e. now investors can transact even in a single share.

  • No Stamp Duty Required on Transfer of Securities

Earlier, while physically transferring shares, stamp duty or share transfer stamps had to be posted below the share certificate. With the introduction of demat account, this has been replaced by the security transaction tax, wherein the entire process of visiting stock exchange to purchase share transfer stamps has been eliminated.

  • Open Demat account online

During the initial days of dematerialisation, a large number of investors were discouraged to open demat accounts and convert their physical share certificates into dematerialised form due to the various fees and charges associated with opening, maintaining and operating a demat account. But today, many banks, brokerage firms and financial institutions are offering individuals and investors to open Demat account online. Also, many DPs are offering individuals to open demat accounts for free and relaxation on various charges associated with opening, maintaining and operating a demat account.

 

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