Demat refers to a dematerialised account.

Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, you need to open a demat account if you want to buy or sell stocks. So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your demat account. Let's say your portfolio of shares looks like this: 40 of Infosys, 25 of Wipro, 45 of HLL and 100 of ACC. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. Is a demat account a must? Nowadays, practically all trades have to be settled in dematerialised form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more. So a demat account is a must for trading and investing. Where do I begin? Look for a DP to have an account with Most banks are also DP participants, as are many brokers. You can choose your very own DP. To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients.

A DP will just give you an account to hold those shares. You do not have to take the same DP that your broker takes. You can choose your own. But many brokers offer special incentives in the form of lower charges for opening demat accounts with their DPs. Get your documents in place Once you approach your DP, you will be guided through the formalities of opening an account. You must fill up an account opening form and sign an agreement with your DP. The DP will ask for some documents as proof of your identity and address. Check with them what they require. For instance, some may accept a driver's license, others may not. Here is a broad list (you won't need all of them though): PAN card Voter's ID Passport Ration card Driver's license Photo credit card Employee ID card Bank attestation IT returns Electricity/ Landline phone bill

While they only ask for photocopies of the documents, they will need the originals for verification. You will have to submit a passport size photograph on which you sign across. How many shares you need to have to open an account When opening an account with a bank, you need a minimum balance. Not so with a demat account. A demat account can be opened with no balance of shares. And there is no minimum balance to be maintained either. You can have a zero balance in your account. What will it cost?

The charges for account opening, annual account maintenance fees and transaction charges vary between DPs. To get a comparative idea, visit the websites of NSDL and CDSL. Can I nominate? Sure. You can nominate whoever you like by filling up the nomination details in the account opening form. This is to enable the nominee to receive the securities after the death of the holder of the demat account. Finally? When you open an account, the DP will allot a unique BO ID (Beneficial Owner Identification) Number, which you need to quote for all future transactions. If you want to sell your shares, you need to place an order with your broker and give a 'Delivery Instruction' to your DP. The DP will debit your account with the number of shares sold. You will receive the payment from your broker. If you want to buy shares, inform your broker about your Depository Account Number, so that the shares bought are credited into your account. What's the difference between a depository and a depository participant? A depository is a place where the stocks of investors are held in electronic form. The depository has agents who are called depository participants (DPs). Think of it like a bank. The head office where all the technology rests and details of all accounts held is like the depository. And the DPs are the branches that cater to individuals. There are only two depositories in India -- the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). There are over a 100 DPs.

Definition Demat account is a safe and convenient means of holding securities just like a bank account is for funds. Today, practically 99.9% settlement (of shares) takes place on demat mode only. Thus, it is advisable to have a Beneficiary Owner (BO) account to trade at the exchanges. Bank Account Vs Demat Account S. Basis Of Differentiation No. 1. 2. Form of Holdings/Deposits Used for Funds Safekeeping of money Transfer of money (without actually 3. Facilitates handling money) 4. Where to open A bank of choice handling shares) A DP of choice (can be a bank) Mandatory (effective from April 01, 5. Requirement of PAN Number Not Mandatory 2006) Interest income is subject to the 6. Interest accrual on holdings applicable rate of interest Minimum balance 7. requirement 8. Either or Survivor facility AQB* maintainance is specified for No such requirement certain bank accounts Available Not available held in demat account No interest accruals on securities Securities Safekeeping of shares Transfer of shares (without actually Bank Account Demat Account

*AQB - Average Quarterly Balance

S. BASIS OF SIMILARITY No. Both are very safe and convenient means of holding 1. Security and Convenience deposits/securities No legal barrier on the number of bank or demat accounts that can 2. Number of accounts be opened Transfer of deposits (funds or 3. securities) 4. 5. Physical transfer of money/securities Nomination Facility account holder Physical transfer of money/securities is not involved Available Funds/securities are transferred only at the instruction of the PARTICULARS

Benefits Of Demat Account

1.
2.

A safe and convenient way of holding securities (equity and debt instruments both). Transactions involving physical securities are costlier than those involving dematerialised securities (just like the transactions through a bank teller are costlier than ATM transactions). Therefore, charges applicable to an investor are lesser for each transaction.

3. 4. 5. 6. 7. 8. 9.

Securities can be transferred at an instruction immediately. Increased liquidity, as securities can be sold at any time during the trading hours (between 9:55 AM to 3:30 PM on all working days), and payment can be received in a very short period of time. No stamp duty charges. Risks like forgery, thefts, bad delivery, delays in transfer etc, associated with physical certificates, are eliminated. Pledging of securities in a short period of time. Reduced paper work and transaction cost. Odd-lot shares can also be traded (can be even 1 share).

10. Nomination facility available. 11. Any change in address or bank account details can be electronically intimated to all companies in which investor holds any securities, without having to inform each of them separately. 12. Securities are transferred by the DP itself, so no need to correspond with the companies. 13. Shares arising out of bonus, split, consolidation, merger etc. are automatically credited into the demat account of the investor. 14. Shares allotted in public issues are directly credited into demat account of the applicants in quick time.

Opening a Demat Account To start dealing in securities in electronic form, one needs to open a demat account with a DP of his choice. An investor already having shares in physical form should ensure that he gets the account opened in the same set of names as appearing on the share certificate; otherwise a new account can be opened in any desired pattern by the investor.

Getting started

Documents to be attached

1. 2.

Choose a DP Fill up an account opening form provided by DP, and sign an agreement with DP in a standard format prescribed by the depository.

1. 2.

Passport size photographs Proof of residence (POR) - Any one of Photo Ration Card with DOB / Photo Driving License with DOB / Passport copy / Electricity bill / Telephone bill

3.

DP provides the investor with a copy of the agreement and schedule of charges for his future reference. 3.

Proof of identity (POI) - Any one of Passport copy / Photo Driving License with DOB / Voters

4.

DP opens the account and provides the investor with a unique account number, also known as Beneficiary Owner Identification Number (BO ID). 4.

ID Card / PAN Card / Photo Ration Card with DOB PAN card

Note:

1.
2.

The agreement required to be signed by the investor details the rights and duties of the investor and DP. DP may revise the charges by giving a 30 days prior notice. SEBI has rationalized the cost structure for isation by removing account opening charges, transaction charges for credit of securities and custody charges, effective from January 28, 2005.

Maximum Number of holders in a Demat Account A maximum of three persons are allowed to open a joint demat account in their names.

DEMATERIALISATION
Definition Dematerialisation is the process of converting physical shares (share certificates) into an electronic form. Shares once converted into dematerialised form are held in a Demat account. Dematerialisation Process An investor having securities in physical form must get them dematerialised, if he intends to sell them. This requires the investor to fill a Demat Request Form (DRF) which is available with every DP and submit the same along with the physical certificates. Every security has an ISIN (International Securities Identification Number). If there is more than one security than the equal number of DRFs has to be filled in. The whole process goes on in the following manner:

THINGS INVESTORS SHOULD KNOW ABOUT ACCOUNT OPENING AND DEMATERIALISATION

Providing the bank account details at the time of account opening It is mandatory for an investor to provide his bank account details at the time of opening a demat account. This is done to safeguard investor's own interests. There are two major reasons for this:

1.

The interest and dividend warrants can't be en-cashed by any unauthorized person, as the bank account number is mentioned on it.

2.

It is convenient and time saving, as dividends and interests given by the companies can be directly credited to the investor's bank account (through ECS facility, wherever available).

Change in bank account details It is possible for an investor to make changes to the details of his bank account. The investor must inform any change in his bank account details to his DP. This enables him to receive the cash corporate benefits (such as dividends, interests) directly into his account in time and discourages any unauthorized use by any second party. Change in the address of investor as provided to the DP Any change in your address should be immediately informed to DP. This enables DP to make necessary changes in the records and informing the concerned companies about the same. Opening multiple accounts An investor is allowed to open more than one account with existing DP or with different DPs. Minimum balance of securities required in demat account There is no stipulated minimum balance of securities to be kept in a demat account. Account opening and ownership pattern of securities One must make sure to open a demat account in the same ownership pattern in which the physical securities are held. For example: If you have two share certificates, one in your individual name (say 'X') and the other held jointly with some other individual (say 'XY'), then in such a case you will have to open two different accounts in respective ownership patterns (one in your name i.e. 'X' and the other account in the name of 'XY'). Same combination of names on certificates but different sequence of names on the certificates or demat account Regulations provide that the client receives a contract note indicating details like order number, trade number, time, price, brokerge, etc. within 24 hours.of the trade. In case of any doubts about the details of the contract note, you (investor) can avail the facility provided by NSE, wherein you can verify the trades on NSE's website. The Exchange generates and maintains an audit trail of orders/trades for a number of years.and you can counter check detais of order/trade with the Exchange. Holding a joint account on "Either or Survivor" basis like a bank account No investor can open a demat account on "E or S" basis like a bank account. Allowing somebody else to operate your Demat account It is possible for an account holder (Beneficiary Owner) to authorize some other person to operate the demat account on his behalf by executing a power of attorney. After submitting the power of attorney to the DP, that person can operate the account on behalf of the beneficiary owner (BO).. Addition/deletion of the names of the account holders after opening the account It is not possible to make changes in the names of the account holders of a BO account. A new account has to be opened in a desired holding/ownership pattern. Closing a demat account and transfer of securities to another account with same or different DP An investor, if he wants, can also close his demat account with one DP and transfer all the securities to another account with existing or a different DP. As per a SEBI circular issued on November 09, 2005, there are no charges for account closure or transfer of securities by an investor from one DP to another Freezing/Locking a demat account The account holder can freeze his demat account for a desired time period. A frozen account prevents securities to be transferred out of (Debit) and transferred into (Credit) the account.

Dematerialised shares do not have any distinctive number Dematerialised securities are fungible assets. Therefore they are interchangeable and identical.