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What is a demat account and who needs to open it?

FILE PHOTO: A man wearing a protective mask walks past the Bombay Stock Exchange (BSE) building in Mumbai, India, March 13, 2020. REUTERS/Francis Mascarenhas (REUTERS)Premium
FILE PHOTO: A man wearing a protective mask walks past the Bombay Stock Exchange (BSE) building in Mumbai, India, March 13, 2020. REUTERS/Francis Mascarenhas (REUTERS)

  • A demat account is required if you want to do stock trading. A demat account works in the same way as a bank account. When you sell or buy stock, the shares in your account are either debited or credited. Read further to get a better understanding!

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A growing number of people have started trading to earn some extra money, or to create an alternative stream of income. However, one must be aware that opening a demat account is the first step before foraying into the stock market.

What is a demat account?

A Demat account is a platform for investors to hold their shares and securities like mutual funds, bonds, etc. digitally in an electronic format. Demat is short for ‘Dematerialised’ which in this sense means ‘converted from physical to electronic form’. Demat accounts are revolutionary in the sense that these have wiped out the need for physical certificates and the risks related to them.

An individual’s demat account is linked to his/her trading account. This smoothens the process of online trading and enables easy accessibility and tracking.

In India, demat account services are primarily provided by two depository bodies known as NSDL and CDSL. These services are further facilitated by numerous “depository participants" such as banks, which act as intermediaries.

Who needs a demat account?

Any individual who wishes to invest in the stock market, i.e. buy or sell shares, in India needs a demat account.

How to open a demat account?

Opening a Demat account is quite simple. To start, one needs to choose a depository participant. This should be done after careful consideration and weighing one’s requirements and services offered by a DP. The next step requires filling out the demat account opening form and completing KYC.

KYC compliance entails submitting certain documents such as aadhaar, address proof, etc. for verification. Further, to complete the verification process the individual is required to fulfill ‘in-person verification’ or online verification through webcam and video conferencing to establish the authenticity of the submitted proofs.

Once the verification process is successfully completed, the individual will be asked to sign a terms and conditions agreement. Following this, the completed application will be processed and if all the steps have been accurately finished, one can expect to get approval in a short time.

Upon approval, the applicant will be given a Beneficial Owner Identification Number (BOID) which can be used to log in to the respective demat account.

So, if you have a plan to try your hand in trading, it is imperative to first open a demat account before you take a plunge into the sea of financial markets.

 

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