The Depository Participant (DP) is the one who holds the securities in the Demat account that an individual possesses. In India, the two major DPs are- National Securities Depository Ltd & the Central Depository Services India Ltd. The DP with which your broking firm has a tie-up with will be the factor to decide which DP will handle your Demat account. The services of both the DPs, though, are similar and don’t have much difference.
How to open a Demat Account in India
Now, below are the steps that are needed to open a Demat account in India and how it is to be done. 1.First, anyone who wants a Demat account in his name needs to approach a Depository Participant. DP is the agent of a depository. Then, you would be asked to fill a form regarding the opening of the account known as the ‘opening form.’ If you want to choose a DP for this, you can visit the websites of CDSL & NSDL, which are the two depositories of India.
2.You would be required to present photocopies of ID proof and Address proof along with the opening form. 3.The depository prescribes the way the agreement needs to be signed between an individual and a DP. So, after presenting the documents, you will sign an agreement with the DP. This agreement will have information about the duties and rights that the investor and DP will have from now on. After the signing process, you will get a copy of the agreement that you signed so that you can keep it with you for any dispute in the future. 4.Then, the final step comes. Now, the DP will open a Demat account in your name and will let you know the account number. This account number is also known as the Beneficial owner identification number. From now on, your account will be credited whenever you buy any securities or invest in some securities, and your account will be debited if you sell some of these securities that you possess already in the account. 5.You have flexibility in terms of the number of Demat accounts that you can have. You can have multiple accounts. Also, choosing the DP is also up to you. You can choose any DP, and it is also not compulsory for you to have a DP account. What should be remembered before or while opening an account? Firstly, whenever you change your address or bank account or any such thing, you should immediately update them in the Demat account. This is important to be done because all the refunds, interest payments, dividend payments, etc. would be done through your bank account, and you will receive notifications only on the personal details that you have mentioned in your Demat account. What are the charges that you would have to pay to get a Demat account opened? You would be asked to pay majorly for the dematerialization and rematerialization of the securities. Other charges relate to the selling transaction fees, account maintenance to be paid annually, etc. Different DPs ask for different charges. You can visit the websites of depositories and check for these charges and their amounts. Advantages of a Demat account
The major advantage that suits everyone is that after having a Demat account, you do not need to keep the physical certificates of the shares you bought. This problem or task is waived off because of a Demat account. Hence, you are also safe from any kind of theft/robbery or natural disaster that may destroy your physical share certificates. The buying and selling of stocks become easy through an account. They can be transferred from one account to another, which is very convenient for the investors or account holders. Hence, this saves time for the individual, and he doesn’t need to do the tedious paperwork. The Demat account also provides the ease of keeping all investments in one place. You need not access different accounts for every other kind of financial instrument like equity, bonds, mutual funds, etc. The cost of transactions also reduces to a great extent for the investors. This is because they do not have to enter a lot of paperwork.
Disadvantages of a Demat account
Demat account can be used and accessed only by the literate people who are also internet savvy. Therefore, this becomes a disadvantage for people who are not educated. They cannot use the Demat account. Due to the dematerialized nature of the securities, trading them becomes irrational. People sometimes get attracted by the profits and overtrade without thinking about anything, which usually leads them to losses. The brokers and other players in this market have the power and ability to manipulate anything for their profits. They can do this easily with the transactions of sale and purchase through your account. Hence, this risk needs to be checked while using the Demat account for trading.
In all, the advantages are heavier than the disadvantages, and therefore, having a Demat account is considered a good decision. Also Read: 20 Tax-Saving Tips For Small Business Owners & Startups So, from the above article, you must have gathered enough knowledge to at least get your first Demat account opened if you wished so earlier. It is easy and simple and will make your trading even easier in the future. So, don’t wait, just go through the process and get it done! The only thing you need to keep in mind is to be careful. Like you try to be as careful as possible while getting involved in transactions related to your bank account, similarly, do that in this case. The Demat account can cause you problems if you are not careful. Otherwise, it is the best decision you can make.
