How do Demat Accounts Function?


Chances are that you have heard about the Demat account multiple times to date, so if you are curious to know what it is and how it functions, you are at the right place.

What is a Demat account?

Demat is the abbreviated version of the dematerialisation account. It acts like a repository where all your share certificates can be stored electronically to enable easy facilitation of stock market trading. Demat accounts help manage stocks, bonds, mutual funds and exchange-traded funds safely, efficiently and conveniently.

You can use your Demat account to buy and sell shares online or offline.

How does a Demat account function? 

Before you plan to open Demat account, it is crucial to understand how they function.

All the Demat accounts are held by NSDL and CDSL, the two depositories in India. They also contain the information of every shareholder in their central depository.

Each of these Demat accounts has an identification code that is unique a prerequisite for every transaction.

In order to access NSDL and CDSL, you need a depository participant (DP) who acts like a mediator between you and them. These DP can either be banks or individual brokers who operate like a bridge between the traders and the depositories.

Motilal Oswal is one of such DPsin India with whom one can open a Demat account.

The Demat account keeps real-time track of the securities that investor hold along with the portfolio, and each transaction is automatically recorded.

You can download one of the trading apps to carry all your transactions.

How to open a Demat account online?

To open a demataccount , one must approach the depository participant, fill out the required form, and log in. There is a list of all valid DPs on the websites of NSDL and CDSL.

Once the individual has filled the opening form correctly, they will be required to enclose copies of documents like identity proof, and address proof along with passport size picture and signature.

After these steps are complete, one needs to sign an agreement with the chosen DP that clearly lists the responsibilities of both – the trader and the DP. A copy of this agreement and the details of the charges will be provided, which are to be kept safely.

The Demat account is then opened and activated by the DP, who provides you with a unique identification number for carrying out all your transactions. This Demat number is also known as BO ID, which is a beneficial owner identification number.

All the transactions made will be credited or debited in your Demat account.

Investors can now open a trading account in less than a few minutes by using the eKYC system. Once all your uploaded documents get approved, you can start investing and trading instantly!  

Documents needed for opening a Demat account

  • A Demat account opening form correctly filled
  • PAN Card, DL, Voter ID, or Aadhar for identity proof
  • Aadhar Card, Passport, Voter ID, or DL for address proof
  • A clear passport-sized photograph
  • Signature on a white sheet

A one-time minimal fee is levied while opening the account for the first time. There are several brokers and DPs who charge zero fees. Apart from this, there is a maintenance fees that is charged yearly, and a brokerage fee that is levied when you buy or sell securities.

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