How to Use Demat Account: A Guide to Operate It

Introduction

According to the regulations of the Securities and Exchange Board of India (SEBI), having a demat account is now mandatory for trading and investing in India. A Demat account facilitates trading and serves as a repository for securities. Moreover, holding securities in electronic format is safer than physical copies, reducing the risk of theft and damages.

While Demat accounts are widely used today, understanding how to use Demat account efficiently is important to know. In this article, we will understand all about the best ways to operate a Demat account, how to open a Demat account and the costs involved. Let’s get started.

How to Open a Demat Account Online?

Opening a demat account is simple, here are the steps you need to follow to open a demat account:

Step 1: You need to first select a registered DP which may be a bank, financial institution, or brokerage firm.

Step 2: The next step is to fill out the Demat account opening form provided by your chosen DP. Make sure to provide the necessary documents, including identity proof, address proof, and PAN card. You may also need additional documents like a passport-sized photo and bank account statement.

Step 3: After submitting the form and documents, the DP will begin the verification process, which includes confirming your PAN card details, verifying your address proof, and conducting an In-Person Verification (IPV). 

Step 4: Once your application is verified, you will receive your client ID or account number. This ID is required to access and manage your Demat account.

How to Use a Demat Account?

Using your demat account involves several steps, from activation to managing your investments. Here are ways how to operate Demat account:

1. Activating and Using Your Demat Account

• Activation: Once your demat account is opened, it needs to be activated. This usually involves receiving and setting up your login credentials for the demat platform provided by your DP.
• Link Your Bank Account: Connect your demat account to your bank account to facilitate smooth transactions.
• Open a Trading Account: To buy and sell securities, you need a trading account. This account will be linked to your demat account. Most DPs offer a demat cum trading account. So, there is no need to open a separate account.
• Integration: Your trading account and demat account should be linked to ensure that your purchased securities are directly credited to your demat account and vice versa. You need to do this process if you have opened a demat account with a bank.
• Dematerialization: If you hold physical share certificates, you need to dematerialize them to transfer them to your demat account. This involves submitting a Dematerialization Request Form (DRF) to your DP. DRF form includes details such as name, folio number, International Securities Identification Number (ISIN), KYC, signature, and any supporting documents if needed on a case-by-case basis.
• Confirmation: Once the dematerialization process is complete, the shares will be credited to your demat account, and you will receive a confirmation of the same via mail.

2. Linking Your Demat Account with a Trading Account

• Open a Trading Account: To buy and sell securities, you need a trading account. This account will be linked to your demat account. Most DPs offer a demat cum trading account. So, there is no need to open a separate account.
• Integration: Your trading account and demat account should be linked to ensure that your purchased securities are directly credited to your demat account and vice versa. You need to do this process if you have opened a demat account with a bank.

3. Transfer of Shares to Your Demat Account

• Dematerialization: If you hold physical share certificates, you need to dematerialize them to transfer them to your demat account. This involves submitting a Dematerialization Request Form (DRF) to your DP. DRF form includes details such as name, folio number, International Securities Identification Number (ISIN), KYC, signature, and any supporting documents if needed on a case-by-case basis.
• Confirmation: Once the dematerialization process is complete, the shares will be credited to your demat account, and you will receive a confirmation of the same via mail.

4. Executing a Power of Attorney for Demat Account

1. Power of Attorney (PoA): A PoA allows your DP to act on your behalf for certain transactions. You may need to execute a PoA if you want to authorise someone to manage your demat account on your behalf.
2. Documentation: Complete the necessary paperwork and submit it to your DP for processing.

Why is a Demat Account Necessary?

Now that you know how to use demat account, here are some of the reasons why a Demat account is essential:

Mandatory for Trading

SEBI regulations mandate that all trades in the stock market be conducted through a Demat account. Without one, you cannot buy or sell shares.

Safety and Security

Holding securities in electronic form significantly reduces the risks associated with physical certificates, such as theft, loss, damage, or forgery. Your investments are securely stored in a digital format.

Convenience

A Demat account streamlines the entire process of managing investments. You can easily buy, sell, and transfer securities with just a few clicks, eliminating the need for cumbersome paperwork.

Access to a Wide Range of Securities

A Demat account allows you to hold a variety of financial assets, including stocks, bonds, mutual funds, ETFs, and more, all in one place. This makes portfolio management simpler and more organised.

Easy Monitoring and Management

With a Demat account, you can monitor your investments in real time. Most trading platforms offer tools to track the performance of your portfolio, receive notifications about corporate actions, and stay updated with market trends.

Cost Involved Around Demat Account

Following are some of the costs that are generally associated with a demat account:

• Account Opening Charges: While many DPs offer zero account opening charges such as Sharekhan, some may charge a nominal fee, typically up to ₹1000.
• Annual Maintenance Charges: The annual maintenance fee Can range from ₹300 to ₹500+, depending on the number of transactions.
• Transaction Charges: Fees per transaction can vary, with some DPs charging a flat rate and others charging a percentage of the transaction value.
• Dematerialization and Rematerialization Charges: Converting physical shares to electronic form or vice versa incurs fees.
• Custodian Fees: Although less common now, some DPs still charge a nominal custodian fee based on the number of securities held.