What is a Demat Account and How to Create One

What is a Demat Account and How to Create One

Are you really interested in the stock market? 

Are you a beginner and still do not know what a Demat Account is?

Then read through this entire post to know all about creating this portfolio.

Earlier, when we didn’t have the facility of Online transaction mode, trading of shares was done physically. Buyers and sellers would go to the stock exchange to do physical trading of shares. Buyers would take their cash and sellers would take their physical certificates of shares. There used to be bidding on the stocks and shares of companies, and when a deal was negotiated the physical exchange of share certificates and cash would take place.

There were certain disadvantages to this process:

•      Both parties had to be physically present for the deal.

•      This entire procedure took a lot of time.

The material procedure that was required way back then was dematerialized. No physical certificates or forms are required in the online process. De-mat simply means the entire process was dematerialized and made Online.

This is similar to our account in the bank.

When we deposit money in the bank, we can view it in electronic form through net banking. You can’t deposit money in a bank if you do not have an account in that bank. So we purchase the shares, stocks and store them in electronic form in this Demat folder.

Here it is also very important to understand the difference between a Demat and a Trading account.

While the former is meant for storing all your shares in one place, the latter is one through which you trade in stocks. Both of them are important since one is incomplete without the other. You make money transactions with the latter while storing the purchases in the Demat folder. Though, to hold the positions for even a single day, you do need a Demat portfolio.

In case you do not have this portfolio, you will have to do Intraday Trading, which means, you buy the share in the morning and you have to clear or square off the position, in other words, sell it the same working day. You cannot hold the shares even for a single night if you do not have a Demat account.

How to create a Demat Account:

The very first step is that you need to decide with which authorized bank, financial institution, or broker you want to carry on future transactions. This bank or broker is your Depository Participant or DP.

How do I understand which DP is good for me?

Well, you have to look into the brokerage charges, annual charges, and the leverage provided by the DP.

An account opening form and a KYC form are duly filled.

Carry the original and photocopies as well, of these documents for KYC details.

•      Pan Card

•      Adhar Card, Driving license, or any other identity proof

•      Voter ID, ration card, or passport as address proof

•      Bank Statement of last 6 months.

•      One canceled cheque.

•      One recent Passport size photograph of yours.

An In-Person Verification (IVP), process follows after this to verify the documents. This is a very important step and rules out chances of fraud and deception. online facility allows IVP through access to a Webcam.

Once this is done, you are provided with a copy of the rules and regulations by the DP. You must go through this thoroughly before signing the documents. In case you are not able to understand anything in the documents or you feel is ambiguous, it is advisable to take professional help.

Finally, your DP provides you with a unique client ID. Create a password and log in to your portfolio.

You are also given a Delivery instruction slip that has instructions for various depositary services like purchase, transfer, etc.

There is no compulsion for a minimum balance of shares to be held in your portfolio. You can start with one and go on to any limit that you want.

If you want to create more such portfolios with a single PAN, you can do so. But you need to change your Depository Participant or DP for that.

As you can see the process of creating this type of a folder is fairly simple. To make it further accessible many DP’s provide an Online opening facility too.

Talking about the statistics, the number of Demat accounts in India is approximately 6.9 crores. That shows how much people are getting inclined towards investing in stock markets day by day.

Published by Reliance Smart Money

Reply heres...

Login / Sign up for adding comments.