What is the Demat Account?
Demat Account or dematerialized account provides the facility of holding shares and securities in electronic format. During online trading, shares are bought and held in a demat account, thus facilitating easy trade for the users. A Demat Account holds all the investments an individual makes in shares, government securities, exchange traded funds, bonds and mutual funds in one place.
Why Demat account:
Safe and convenient
It is a safe and convenient way to hold securities.
It ensures immediate transfer of securities.
Risks associated with physical certificates such as bad delivery, fake securities, delays, thefts, etc. are eliminated.
Reduction of Paper Work:
There is a major reduction in paperwork involved in transfer of securities, and reduction in transaction cost, etc.
Types of Demat and Trading Account:
Equity & Derivatives Trading Account
An Equity & Derivatives Trading account is what you open with a Trading Member (Stock Broker) of a recognized Stock Exchange (presently NSE,BSE and MCX-SX in India). A Trading account is the account to which you transfer funds and then buy/sell stocks, Futures & Options. This can be done, either online or offline.
Equity Demat Account
Dematerialized Account popularly known as Demat Account, is the account where you keep stocks in electronic format. Similar to how a Savings Account allows you to keep money in electronic format, a Demat account allows you to keep stocks in electronic format. In essence a Demat Account is a safe storage for your stocks and this is the only use of a Demat Account. Whilst opening a Demat Account you’d be required to sign the Demat Form and the Power of Attorney.
Commodity Trading Account
A Commodity Trading account is what you open with a Trading Member (Commodity Broker as you call him) of recognized Commodity Exchange (MCX, NCDEX etc. in India).
How to open Demat and Trading account:
Opening a demat account
Step 1: To open a demat account, you have to approach a depository participant (DP), an agent of depository, and fill up an account opening form.
Step 2: Along with the account opening form, you must enclose photocopies of some documents for proof of identity and proof of address.
Step 3: You will have to sign an agreement with DP in the depository prescribed standard format, which gives details of rights and duties of investor and DP. You are entitled to receive a copy of the agreement and schedule of charges for future reference.
Step 4: The DP will then open an account and give you the demat account number. This is also called beneficial owner identification number (BOID). All your purchases / investments in securities will be credited to this account. If you sell your securities, your demat account will be debited.
Demat account charges:
Investors are required to pay the charges towards:
- Dematerialisation and rematerialisation of your securities
- Annual account maintenance
- Transactions fees (only for sell transactions)
- The charges of DPs are available in comparable structure on the websites of the depositories.
What is ISIN number?
ISIN (International Securities Identification Number) is a unique 12 digit alpha-numeric identification number allotted to each security. (E.g.- INE383C01018). Fully paid-up equity shares, partly paid-up shares, equity with differential voting / dividend rights issued by the same issuer will have different ISINs.
How to find ISIN number?
The details of ISIN number of securities are available in the website of National Securities Depository Ltd and Central Depository Services (India) Ltd.
Power of attorney (PoA)
- You have the option to authorise any person to operate your DP account by executing a power of attorney (PoA) and submitting it to the DP. PoA enables the authorised person to operate the account on your behalf.
- You have the option to grant PoA in favour of your broker and / or DP to operate your account, i.e. to buy or sell shares on your behalf, debit or credit your bank account and DP account. However, you are required to carefully read and understand all the clauses of the PoA before signing it.
- PoA is an optional facility and executing it is not mandatory. No stock broker or DP can deny services to you if you refuse to execute it. You can revoke PoA at any time.
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