In India if you are planning to invest in stocks, bonds, debentures you need to have access to a demat account. Of late the option of online demat account has sprung up as well. By this concept you do not need to possess your securities in physical form, what happens is that the financial instruments are held in an electronic form. Before opening up a demat account there are some points you have to be aware.
Definition of depository
A depository is basically an organization that goes on to hold mutual funds, government securities in electronic form. You can compare their services in a similar manner like a bank. There are a couple of depositories in the form of NSDL and CDSL and both of them are registered with SEBI. The former is associated with the national stock exchange of India whereas the latter works for the central stock exchange.
How to open a Demat account
If you are planning to open a demat account you have to approach a depository participant. Basically DP is an institution who acts as a liaison between depository and an investor. The stock brokers or commercial banks could register as a DP with SEBI. This list can be obtained from the websites of CDSL and NDSL
The documents you need to open a demat account
In order to open by a demat account you have to submit a list of documents to your DP
- A couple of passport size photos
- Any proof of identity as this can be in the form of a voter ID, Aadhar card or even driving license
- Any proof of residence as once again this can be your driving license, aadhar card or voter Id
- A copy of your PAN card
Once you submit the above list of documents, then it is going to take a couple of weeks in order to open a demat account.
The benefits of opening a demat account
- A convenient along with a safe method of holding high value stocks, bonds along with securities
- Instant transfer of money when securities are sold to an investor
- It reduces the physical risk by which securities are transferred in the form of thefts or fake documents
- Any bonus shares that you possess gets transferred to a demat account without the need for any paper work
- There is no need to change the address in the companies you happen to be an investor, for any change of address it is communicated by the DP to the company
As far as the charges of opening a demat account is concerned it varies as per DPs
To conclude if you are looking to reap the benefits of investing in a stock market a demat account is a must. Before you do so figure out the various fees that are levied by a research recipient and figure out the various features on offer. If you happen to be a new investor then basic demat account services would suffice.
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