Process of Opening a Demat Account
Step 1: Begin with selecting a depository participant. It can be a registered depository participant or broker. These intermediaries open a demat and trading account on behalf of any of these two depositories – the NSDL or the CDSL. The right broker or DP can help you significantly in your financial journey.
Step 2: After you have successfully chosen the depository participant, you can visit its website and download the demat account opening form. Along with that, a list of documents required for a demat account will also be provided.
Step 3: The account opening form has to be submitted along with the scanned documents. The basic documents required are; Adhaar card, PAN card, Bank account proof, and Income proof.
Step 4: PAN card is compulsory for opening a Demat account.
Step 5: The process goes ahead and the form along with the documents go for verification in the backend. After the backend verifies all the documents, the DP needs you to go through an in-person verification process, also called IPV. Now, thanks to technology! you will not have to visit the broker’s office anymore and the IPV will be done digitally.
Step 6: Once the IPV is complete, the agreement formality is to be between the broker and the account holder. The agreement contains all the details regarding the fees of the broker. Carefully read the agreement and then sign.
Step 7: After the approval of your application, you shall be able to access your Demat account online with the help of a unique account number and password.
It is your choice to have a demat account for mutual funds investing. However, to trade and invest in the Indian financial markets you would require a demat and trading account.
Pros of Having a Demat Account
- A Demat account enables you to hold and track all the investments you own in one place. A Demat account is not only the storage for mutual funds but can also store many other financial securities safely, such as ULIPS, bonds, Exchange Traded Funds (ETFs), debentures, etc. You can easily track your entire investment portfolio in this centralized place.
- As an investor holding a Demat account, you do not need to worry about having to deal with forged or fake investment certificates. Each record of investment associated with your account is genuine.
- The depository participants – banks, brokers, and institutions also facilitate the conversion of your physical instruments into electronic format.
- Investors can track their demat securities from any location globally using a stable internet connection. The demat account also allows investors to track their investments on multiple devices. You can log in to the demat account from N number of gadgets as there is no limit on the number of devices.
- Earlier shares were stored and transferred in physical format. And, there were a lot of issues in the old offline trading system. Issues such as theft, forgery, and many more. The technology and demat accounts eradicated such issues. Online Demat accounts made it easy to store and transfer shares in an electronic format.
- The overall cost associated with a transaction is reduced as a Demat account does away with additional costs which were levied on physical investment certificates.
Cons of Holding a Demat Account
- The holder of a Demat account is required to pay the maintenance fee, transaction fees along with additional charges even if the holding consists of one single share.
- A Demat account holder should know how to operate, monitor, track and transact among other skills. Due to limited technical knowledge, the account holder may take the help of external sources for assistance, which might not be very reliable.
- The majority of demat account holders do not read the rules and regulations set by the broker. Sometimes, which leads them to pay extra charges. A new demat account holder should also know that if there has been no transaction in the demat account for too long. The account becomes dormant.