What is Demat Account ?

Demat account is mandatory for trading and investing of shares. Demat refers to dematerialized
account. Demat Account is a safe secure and convenient way where you can buy and sell the shares
without any paper work and all the things will be taken care by the DP (Depository Participants).If
you have demat account you need not to show any kind of physical certificate that you have these
shares. hey held automatically in your account. DP will also provide you monthly statement of
your transaction !ust like a bank statement
How to Open a Demat account?
o open a Demat account you have to approach DP and he will be guided you the official procedure
to open an account.
o see who the register DP is" you can visit #$D% and &D$% website .'ou can choose the DP of
your own choice. (n opening a demat account" a uni)ue *(ID (*eneficial (wner Identification)
#umber is allotted" which should be )uoted in all future transactions.
'ou can open a Demat account with no balance of shares" there is no minimum balance is re)uired
Documents required for opening a Demat Account? +
,) o open a demat account you have to fill demat re)uest form
-) (ne Passport size photograph" proof of address like .oter ID card" electricity bill or /ation &ard"
0mployee ID &ard" *ank attestation and %atest I /eturn
1) $ubmit the D/2 3 share certificate(s) to DP. DP would forward them to the issuer 4 their /3
Agent.
5) Deface the share certificate(s) you want to dematerialize by writing across $urrendered for
dematerialization
6) After dematerialization" your depository account with your DP would be credited with the
dematerialized securities.
7) 'ou have to $ubmit the PAN Card as a proof of identity .As of April -887 it is mandatory, if
any person want to open a demat account should have a PA# &A/D (Permanent Account number) .
9ithout a PA# &A/D you are not be eligible to open a Demat account
Benefits of Demat Account
#omination facility is available in Demat account
'ou can purchase "hold and sell shares in electronic form
'ou can save a transaction cost with )uick transfer
$hares are credit automatically in Demat account "no paper work is re)uired
It is )uick" easy" safe and secure" it reduces time taken during trading and avoiding the
problem like signature mismatch and loss of certificates and the risk due to fire and theft
Demat account holders need not pay stamp duty posted.
'ou can even sold one share as per your choice
'ou can open as many account "there is no limit on that" and you can open your account
before you buy your first security
'ou can open a multiple demat account" which can be operated by multiple holders
Demat Account Opening fees
2ew banks will not charge you the demat account opening fees" but there is some annual
maintenance charges as well as transaction charges on Demat account
Custodian fee
&ustodian fees depends on the number of securities and this fees is charged monthly (international
securities identification numbers : I$I#) held in the account. It generally ranges between /s 8.6 to
/s , per I$I# per month.
DPs will not charge custody fee for I$I# on which the companies have paid one;time custody
charges to the depository.
ransaction fee
(n a monthly basis transaction fees is charges for crediting4debiting securities from the account.
he fee also based on the kind of transaction (buying or selling). $ome DPs charge only for debiting
the securities while others charge for both. he DPs also charge if your instruction to buy4sell fails
or is re!ected.
In addition" service ta< is also charged by the DPs.
Demat account
In India" shares and securities are held electronically in a Dematerialized (or =Demat=) (4d im > t4?)
account" instead of the investor taking physical possession of certificates. A Dematerialized account
is opened by the investor while registering with an investment broker (or sub;broker). he
Dematerialized account number is )uoted for all transactions to enable electronic settlements of
trades to take place. 0very shareholder will have a Dematerialized account for the purpose of
transacting shares.
Access to the Dematerialized account re)uires an internet password and a transaction password.
ransfers or purchases of securities can then be initiated. Purchases and sales of securities on the
Dematerialized account are automatically made once transactions are confirmed and completed.
Ad!antages of demat
The bonus/right shares allotted to the investor will be immediately credited
into his account.There is no risk due to loss on account
of fire, theft or mutilation. Transaction costs are usually lower than that in
the physical segment. A demat account also helps avoid
problems typically associated with physical share certificates.
2or e<ample@ delivery failures caused by signature mismatch" postal delays and loss of certificate
during transit. 2urther" it eliminates the risks associated with forgery and due to damaged stock
certificates. Demat account holders also avoid stamp duty (as against 8.6 per cent payable on
physical shares) and filling up of transfer deeds. he biggest advantage of having demat account is
that you donAt have to pay for stamp since these are electronically stored which reduces the
transaction cost.
"oa# of Demat $ystem
India adopted the Demat $ystem for electronic storing" wherein shares and securities are
represented and maintained electronically" thus eliminating the troubles associated with paper
shares. After the introduction of the depository system by the Depository Act of ,BB7" the process
for sales" purchases and transfers of shares became significantly easier and most of the risks
associated with paper certificates were mitigated.
Demat %enefits
he benefits of demat are enumeratedCby whom?D as follows@
0asy and convenient way to hold securities
Immediate transfer of securities
#o stamp duty on transfer of securities
$afer than paper;shares (earlier risks associated with physical certificates such as bad
delivery" fake securities" delays" thefts etc. are mostly eliminated)
/educed paperwork for transfer of securities
/educed transaction cost
#o =odd lot= problem@ even one share can be sold
&hange in address recorded with a DP gets registered with all companies in which investor
holds securities eliminating the need to correspond with each of them separately.
ransmission of securities is done by DP" eliminating the need for notifying companies.
Automatic credit into demat account for shares arising out of bonus4split"
consolidation4merger" etc.
A single demat account can hold investments in both e)uity and debt instruments.
raders can work from anywhere (e.g. even from home).
*enefit to the company
he depository system helps in reducing the cost of new issues due to lower printing and
distribution costs. It increases the efficiency of the registrars and transfer agents and the secretarial
department of a company. It provides better facilities for communication and timely service to
shareholders and investors.
*enefit to the investor
he depository system reduces risks involved in holding physical certificates" e.g." loss" theft"
mutilation" forgery" etc. It ensures transfer settlements and reduces delay in registration of shares. It
ensures faster communication to investors. It helps avoid bad delivery problems due to signature
differences" etc. It ensures faster payment on sale of shares. #o stamp duty is paid on transfer of
shares. It provides more acceptability and li)uidity of securities.
*enefits to brokers
It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading.
It eliminates chances of forgery or bad delivery. It increases overall trading and profitability. It
increases confidence in their investors.
Account&opening fee
Depending on the DP" there may or may not be an opening account fee. Private banks" such as
ED2& *ank C,D and AFI$ *ank" do not have one. Eowever" players such as Gotak $ecurities"C-D
$ushil 2inance" I&I&I *ank" Hlobe &apital" Garvy &onsultants and *a!a! &apital %imited do
impose an opening fee. $tate *ank of India does not charge any account opening charge while other
maintenance and transaction charges apply. Iost players levy this when re;opening a demat
account. Eowever" the $tock Eolding &orporation offers a lifetime account opening fee" which
allows the investor to hold on to his4her demat account for a long period. he fee is also refundable.
Annua# maintenance fee
his is also known as folio maintenance charges" and is generally levied in advance. It is charged on
annual or monthly basis.
Custodian fee
his fee is charged monthly and depends on the number of securities (i.e. I$I#s) held in the
account. It generally ranges between /s 8.6 to /s , per I$I# per month. DPs will not charge a
custody fee for an I$I# on which the companies have paid one;time custody charges to the
depository.
ransaction fee
he transaction fee is charged for crediting4debiting securities to and from the account on a monthly
basis. 9hile some DPs" such as $*I" charge a flat fee per transaction" ED2& *ank and I&I&I *ank
peg the fee to the transaction value" which is sub!ect to a minimum amount. he fee also differs
based on the kind of transaction (buying or selling). $ome DPs charge only for debiting the
securities" while others charge for both. $ome DPs also charge the investor even if the instruction to
buy4sell fails or is re!ected. In addition" service ta< is also charged by the DPs.
In addition to the other fees" the DP also charges a fee for converting the shares from the physical to
the electronic form or vice;versa. his fee varies for both demat (physical;to;electronic) and remat
(electronic;to;physical) re)uests. 2or demat transactions" some DPs charge a flat fee per re)uest in
addition to the variable fee per certificate" while others charge only the variable fee.
2or instance" $tock Eolding &orporation has charged /s -6 as the re)uest fee and /s 1 per
certificate as the variable fee. Eowever" $*I has charged only the variable fee" as /s 1 per
certificate. /emat re)uests also have charges akin to that of demat. Eowever" variable charges for
remat are generally higher than demat.
$ome of the additional features (usually offered by banks) are as follows. $ome DPs offer a
fre)uent;trader account" where they charge fre)uent traders at lower rates than the standard charges.
Demat account holders are generally re)uired to pay the DP an advance fee for each account that
will be ad!usted against the various service charges. he account holder needs to raise the balance
when it falls below a certain amount prescribed by the DP. Eowever" if the holders also hold a
savings account with the DP" they can provide a debit authorisation to the DP for paying this charge.
2inally" once choosing a DP" it would be prudent to keep all accounts with that DP" so that tracking
of capital gains liability is easier. his is because when calculating capital gains ta<" the period of
holding will be determined by the DP" and different DPs follow different methods. 2or instance"
I&I&I *ank uses the first in first out (2I2() method to compute the period of holding. he proof of
the cost of ac)uisition will be the contract note. he computation of capital gains is done account;
wise.
'ndian Ban(ing $ystem 2irst" an investor has to approach a DP and fill up an account opening
form. he account opening form must be supported by copies of any one of the approved
documents to serve as proof of identity (P(I) and proof of address (P(A) as specified by $0*I. An
investor must have his4her PA# card in original at the time of opening of the account (mandate
effective from April ," -887).
All applicants should carry original documents for verification by an authorized official of the
depository participant" under his signature. 2urther" the investor has to sign an agreement with the
DP in a depository prescribed standard format" which details rights and duties of investor and DP.
DP should provide the investor with a copy of the agreement and schedule of charges for their
future reference. he DP will open the account in the system and give an account number" which is
also called *(ID (*eneficiary (wner Identification number). he DP may revise the charges by
giving 18 days notice in advance. $0*I has rationalised the cost structure for dematerialisation by
removing account;opening charges" transaction charges for credit of securities" and custody charges
vide circular dated January -K" -886.
Disad!antages of Demat
rading in securities may become uncontrolled in case of dematerialized securities.
It is incumbent upon the capital market regulator to keep a close watch on the trading in
dematerialized securities and see to it that trading does not act as a detriment to investors.
2or dematerialized securities" the role of key market players such as stock;brokers needs to
be supervised as they have the capability of manipulating the market.
Iultiple regulatory frameworks have to be conformed to" including the Depositories Act"
/egulations and the various *ye;%aws of various depositories.
Agreements are entered at various levels in the process of dematerialization. hese may
cause worries to the investor desirous of simplicity.
here is no provision to close a demat account" which is having illi)uid shares. he investor
cannot close the account and he and his successors have to go on paying the charges to the
participant" like annual folio charges etc.
After li)uidating the holdings" many Indian investors donAt close their dp account.hey are
unaware that DPs charge even on accounts with nil holdings.
ransfer of $hares %etween )depository participant* DPs
o transfer shares" an investor has to fill one of two kinds of Depository Instruction $lip (DI$). he
first check made is whether both Demat accounts are at the same depository. here are two
depositories@ (&$D% (&entral $ecurities Depository %imited) and #$D% (#ational $ecurities
Depository %imited)). If both demat accounts are not at the same depository" then an Inter
Depository $lip (Inter DI$) has to be filled and submitted. 2or e<ample@
If there is one Demat account with &D$% and the other Demat account with #$D%" then an
Inter;DI$ is needed. (In case the investor needs an Intra;DI$" the investor should check with
the broker" since brokers usually issue an Intra;DI$).
#ow that the correct DI$ has been determined" information pertaining to the transfer
transaction has to be entered@ scrip name" I#0 number" )uantity in words and figures.
2inally" the investor should submit that DI$ to the broker with signatures.
he transfer broker shall accept that DI$ in duplicate and acknowledge receipt of DI$ on
duplicate copy.
he investor should submit the DI$ when the market is open. Accordingly" date of submission of
DI$ and date of e<ecution of DI$ can be same or a difference of one day is also acceptable. he
investor also has to pay the broker some charges for the transfer.