If you are wondering how to get started in the stock market, then the first step is to open a Demat account with a trusted brokerage firm.
You can also open a Demat account online these days to start trading/investing. In this blog, we will cover –
- What is a Demat account?
- What are the uses of a Demat Account?
- What are the Benefits of a Demat Account?
- How to choose the Best Stock Broker for opening a Demat account?
- Why is it necessary to open a Demat account?
- What are the documents required to open an account?
- How much time is required to open a Demat account?
What Is A Demat Account?
Earlier, when you buy a company’s stocks, you get a physical certificate of the shares. Today, you no longer have to hold any physical certificates. By opening a Demat account, you can hold your shares in electronic format. So, a Demat Account is an account that allows you to hold the company shares and securities in electronic format.
So it is also known as Dematerialized account. In addition to stocks, your Demat account can hold mutual funds, exchange-traded funds (ETFs), and bonds. You can open a Demat account online or apply for a 3-in-1 Demat account which will link your trading and bank account.
What Are The Uses Of A Demat Account?
Holding physical share certificates involves risk. It might get lost, torn, or damaged with time. Moreover, when you transfer the physical share certificates, it requires a lot of paperwork. So to safely maintain, store and transfer your shares, you need a Demat account. The other uses of a Demat account are:
- You need a Demat account to invest in Equity.
- You require a Demat account to buy or sell your stocks and securities.
- You need a Demat account to make transactions with listed company securities as mandated by SEBI.
What Are The Benefits Of A Demat Account?
There are so many benefits of opening a Demat account. Such as:
- Having a Demat account is safe and secure for holding your shares. Since it is a digital account, there is no chance of misplacing your shares, unlike physical shares.
- A Demat account is a digital account. So there is no chance of forgery or theft for your shares which can happen with physical shares.
- Transferring shares in a Demat account is quick and highly secure. The processing time is less in comparison to that of transferring physical shares and certificates.
- There is no paperwork and stamp duty with electronic shares. So there is a lower cost involved in holding your shares in a Demat account.
- You can access your Demat account from multiple access points such as mobile, desktop, laptop, tab etc. So it is easy to access your Demat account.
- You can easily convert your physical shares into electronic format with a Demat account (dematerialization). Also if you want to reconvert them, you just have to instruct your DP (Depository Participant) to convert them back to physical shares.
How To Choose the Best Stock Broker for Opening a Demat Account?
There are two kinds of brokerage services available in the market –
a) Full-Service Brokers and b) Discount Brokers.
Full-service brokerage firms provide,
- Strategy-related calls
- Stock advisory
- Margin against shares
- Investment and IPO related information
- Latest updates in the market
- Studies and Research Report
- Dedicated RM support, and
- Portfolio maintenance.
Discount brokers, although levy low brokerage charges compared to Full-service brokerage firms, discount brokers do not provide any additional facilities. So, beginners should open a Demat account with a full-service brokerage firm that provides low brokerage charges and additional facilities.
Is it necessary to open a Demat account?
A Demat account is just like a bank account where you can hold your shares and securities. With the booming financial market, you need a Demat account to invest in equities, mutual funds, and commodities to start your journey towards wealth creation. Earlier investors could possess physical shares, but after 1996, SEBI passed a regulation stating that investors need to have a mandatory Demat account to invest in the stock market.
So, if you want to trade in stock markets like BSE and NSE in India, you need to open a Demat account. Also, your Demat account must be linked with a trading account so that you can sell your shares. Having only a Demat account will facilitate you to buy shares but not sell them.
Which Documents Are Required To Open A Demat Account?
To open a Demat account with a brokerage firm, you need the following documents:
- A Proof of identity with a valid photograph (Aadhar Card/Voter Card/Driving License/Passport)
- A Proof of address (Passport/Driving License/Any Utility Bill not older than 3 months/Ration Card/Voter Card/Copy of your bank statement not older than 3 months)
- A Proof of Income for trading in Derivatives ( Recent salary slip/Form 16/Copy of your ITR)
Other documents include:
- Cancelled Cheque of any scheduled commercial bank in India
- Valid Photograph
- Signature on a White Paper
The documents required will slightly differ depending on the kind of account you are opening. Above mentioned documents are for Indian residents above the age group of 18 years or above. For Minors and Non-Resident Indians contact your broker to get the details of documents required for opening a Demat and trading account.
How Much Time Is Required To Open A Demat Account?
Opening a Demat account online is easy. If you have all the documents ready, it takes less than 5 minutes to open a Demat account online. However, you can start trading within 3-7 working days after verification of all the documents that you have submitted.
Conclusion
A Demat account is a safe and secure account, unlike your bank account. Having a Demat account is mandatory for those who are looking to invest in the stock market. While the primary goal of a Demat account is to enable investors to hold and transfer the shares safely, it also provides an efficient and optimized trading experience. You need to research and find the right brokerage firm before opening a Demat account.
So what are you waiting for? Open a Demat account online with the most trusted, full-service broker, Choice, and start trading/investing.
