So you want to open a demat account. Banks and brokers have made demat account opening quite simple. But it would not hurt to gain some familiarity with the steps involved. Knowing how it all works could smooth out the demat account opening process for you.
The word ‘demat’ is short for ‘dematerialised’. If you invest in shares or other financial securities, you can hold these in your demat account in dematerialised form. This means the security certificates are maintained in electronic form in your account. No need to bother about physical certificates anymore.
In any case, the Securities and Exchange Board of India [SEBI] has mandated that only dematerialised securities can be bought and sold on stock exchanges. There is no scope for buying or selling shares in the physical form. That means for those wishing to trade or invest in the stock market, having a demat account is essential. If you don’t have a demat account yet, here’s what you need to know about the demat account opening process.
Steps to follow to open a Demat Account
1. Contact a registered Depository Participant [DP]
A depository helps investors and traders to buy and sell securities like shares, bonds, debentures, and mutual fund units by holding them digitally. Supporting the depository in carrying out its functions are registered DPs. These could be banks, brokers, or other financial institutions. You can get a list of DPs from the websites of India’s two depositories – National Securities Depository Limited [NSDL] and Central Depository Services Limited [CDSL].
2. Complete the paperwork
Once you select a DP, it is time to fill in the demat account opening form. You can download the form from the DP’s website. At this stage, you will also have to furnish the Know Your Customer [KYC] documentation.
Demat account charges
Some DPs levy a demat account opening charge, but the amounts tend to vary and the amount charged may be refundable in some cases. You could also shop around for a DP that will open an account for you free of charge.
Among the other charges are an annual maintenance fee and a custodian fee for holding your digital certificates securely. You would also incur transaction charges, though this too would vary from one DP to another. The transaction charge could take the form of a flat rate. Or it could be a variable charge based on the number of transactions you make.
Common demat account opening questions
Q. Is it possible to open multiple demat accounts under one name?
Yes. You can open and operate more than one demat account with the same DP or with different DPs. However, the KYC process has to be carried out each time you open a new account.
Q. What is the minimum balance requirement?
You are not obliged to maintain a minimum number of securities in your demat account.
Q. Can a minor hold a demat account?
The parent or court-appointed guardian of a minor can open a demat account in the child’s name. Here, two KYC forms will have to be filled – one for the minor and one for the parent or guardian. The parent or guardian has to operate the account until the minor turns 18. At that time, the old account will be discontinued and a fresh one will have to be opened.
Q. Why KYC is important for demat account opening
SEBI has made the KYC process mandatory for opening a demat account. When you provide the complete KYC documentation, the authorities are able to track the flow of funds to and from your account. The KYC norms help curb illegal practices like money laundering, fraud, and funding of terrorist activities.
Once you complete your KYC, the data is stored in a centralized database. The authorities can access this by entering your PAN. It also simplifies the filing of tax returns, since your stock market transactions are easily linked with your bank account and tax returns.
KYC norms for opening a demat account
To complete the customer identification process, you will need to provide the following KYC documents:
- Proof of identity [e.g. PAN card with photograph, passport, voter’s identity card]
- Proof of address [e.g. PAN card with photograph, passport, voter’s identity card, ration card, utility bills, bank account statement]
- Bank account number
- PAN card
Summing up
A demat account can add an extra layer to your financial planning. Now that you have the option of investing in the stock markets, take your wealth creation plans up a notch. Besides, holding securities in electronic form certainly beats having to maintain physical certificates. Dematerialised securities are safe, as well as easy to buy, sell, or transfer.
To open a new demat account, simply approach a DP like Kotak Securities, fill out the account opening form, provide the KYC documentation, and you’re done. You should get your account details within a week or two. To ensure a smooth account opening process, simply ensure that your KYC documents are in order.