What Is A Demat Account? All You Need To Know

Time to read: 6 mins | March 08, 2018

The capital market regulator –– the Securities and Exchange Board of India, two decades ago came up with a diktat that trading in securities, particularly equity shares, will be allowed only if they were held in a dematerialised form.

Dematerialisation is a process in which your physical investment certificates/securities (shares, mutual funds, ETFs, bonds, debentures, etc.) get converted to an equal number of securities in an electronic form, credited into your account with your Depository Participant (DP) –– which could be a bank or a broker.

So, as against holding valuable securities (shares, mutual funds, ETFs, bonds, debentures, etc.) in a physical or paper form, they can be held in an electronic form. The process of dematerialisation normally takes about 15 days.

National Securities Depository Limited (NSDL) was the first depository established in 1996 to handle the process of dematerialization, followed by Central Depository Services Limited (CDSL) in 1999.

Banks and brokers are DPs of either of the aforesaid depositories.

Please note that it is not compulsory to dematerialise your physical certificates. As per the Depository Act, 1996, you have an option to hold shares either in physical or dematerialised form.

However, if you wish to trade (buy and/or sell) your valuable securities, holding a demat account is always beneficial.

How to open a demat account?

To open a demat account, you need to approach a DP, who could be your bank or broker. You need to fill in the account opening form and along with it submit the following documents:

• Aadhaar
• Other address proof (Ration card, voter id, driving license, etc.)
• PAN
• Bank statements
• Bank crossed cheque
• KYC form

Make sure you are reading the terms and condition carefully. Also, add a beneficiary to the demat account for efficient estate planning.

The DP will then follow a verification process. And once that’s done, the DP will allocate a unique account number or ID to the account. It usually takes around a week or so to open a demat account – which can be even accessed online –– by logging into your account, through e-mail, or you can opt for dial-your-demat service.

You can even hold multiple demat accounts with different DP. However, for better control over your investment activity and finances, it would be imprudent to hold numerous demat accounts.

In case if you wish to close existing multiple demat account, yes that’s possible. All you need to do is submit an account closure request to the DP in a prescribed form. The DP will then transfer the securities held in that account to another demat account, as instructed by you, and close the demat account.

Say, for any reason you wish to freeze or lock the demat account for a desired span, even that’s possible.

Types of demat accounts:

Broadly, there are two types of demat accounts…

• Basic Services Demat Account (BSDA) – This account is designed for small investors whose holding value of investment certificates or securities does not exceed a couple of lakhs. Thus, the annual maintenance charge for this account is lower. BSDA was introduced after SEBI’s diktat in August 2012, prior to that only regular demat accounts existed.

Typically, BSDA holders are not charged an annual maintenance charge for holding value upto Rs 50,000. For a holding value between Rs 50,000 to Rs 2 lakh the annual maintenance charge is Rs 100, while if it is over Rs 2 lakh, the tariff of a regular demat account applies.

• Regular Demat Account – This is a normal demat account which even a small investor can open. Compared to BSDA the charges for this account are more, but are worth it for the services and convenience it offers.

What are the demat account opening and maintenance charges?

Most DPs at the time of opening do not charge you anything. However, for annual maintenance the fee varies across DPs, except BSDA.

Besides, for dematerialisation, DPs usually levy a nominal fee (ranging from Rs 5 to Rs 50) on a per certificate basis. Similarly, for re-materialisation (i.e. conversion of holdings from electronic form to physical paper form) the charges range from Rs 20 to Rs 100.

Is there a minimum balance required to maintain demat account?

As mentioned before, the demat account is to hold your valuable investment certificates or securities in an electronic form. So, unlike a savings bank account and/or a current account, there’s a no-minimum-balance criteria for a demat account.

Here are 10 benefits of a demat account:

1. Storing valuable investment certificates or physical securities will not be an issue

2. You do not have to worry about mutilation or white-ants attack

3. It eliminates the threat of theft, forgery, fake certificates, non-delivery, etc.

4. It even facilitate ease in transacting, i.e. buy and sell securities backed by electronic settlements

5. Reduces transaction cost vis-à-vis dealing with physical investment certificates/securities

6. Reduces the paperwork involved while transacting

7. Enhances the liquidity of the securities you hold in the investment portfolio

8. A lower annual maintenance fee reduces your cost of holding securities

9. If need be, you can even pledge the securities in a demat account

10. A demat account is a safe, convenient, and an efficient way of holding your valuable investment certificates/securities

Along with a demat account, make sure you open a trading account so that you buy and sell securities.

If you do not hold a demat account and trading account, reach out to your bank’s relationship manager or wealth manager to open one today!

Happy Banking!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.