What is a DEMAT Account?
DEMAT is short for ‘Dematerialization’. This term is used in the context of shares. It is often also referred to as a ‘Share Market DEMAT Account’.Shares earlier used to be bought and stored in the form of physical share certificates, which involved lengthy paperwork, and storage methods that were prone to the risk of loss or theft or damage. Thus, the intangible cost of holding ‘material’or ‘physical’ shares was quite high, which needed to change.
DEMAT Accounts did just that. With a DEMAT Account, you could hold shares in an electronic form, save on tedious paperwork, and protect yourself from the risk of losing your precious shares. This also allowed the shareholder to trade in shares safely, easily and electronically.
A DEMAT Account is similar to a bank account in which you hold deposits while the bank records the credit and debit of that account for you. A DEMAT Account can hold all your important investments like equity shares, mutual funds, exchange traded funds, bonds, and government securities. A DEMAT Account can be opened even without possessing any shares. You can open a DEMAT Account with a zero balance.
Why do you need to create a DEMAT Account?
You need to keep your precious investment-related documents like certificates, safe. A DEMATAccount helps you do just that by storing your physical documents like share certificates etc. in a digitised format. DEMATAccounts are managed by various depositories in India like SAS Online. DEMATAccounts are easy to use and allow investors to access stocks, Mutual Funds, bonds, ETFs, IPOs and much more.
Your DEMATAccount will allow you to:
- To trade in equities
Since 2014, SEBI has stopped the buying and selling of equities in paper form. It is also mandatory to store equities in a digitised form, by converting the paper ones into digitised versions. It is therefore important for all equity buyers and sellers to have a DEMAT Account.
- To keep an overview of all your investments, in a variety of securities
You can invest in a variety of securities through your DEMAT Account, namely, equities of course, insurance, bonds, IPOs, Fixed Deposits, and even Mutual Funds (although, this is not mandatory) from all AMCs. Along with these, you can also trade in derivatives.
- To track your portfolio performance
A data-rich DEMAT Account can help you access live market data as well as help you with a detailed analysis of your investments and their performance. It will help you make timely, informed decisions for maintaining a balanced, well performing portfolio.
- Follow market news
In the daily grind, even the most consistent investors tend to lose track of important and valuable company information that can impact their investments. An information-rich DEMATAccount helps you keep track of important information and curate it into your account for further decisions.
- Set alerts
Your DEMATAccount can also set alerts for you to buy and sell stocks at a specified price. This way, busy people can use the auto-pilot function and still make the best out of their investments.
How do you open a DEMAT Account?
A DEMAT Account with SAS Online can be simply and easily opened just like you would, a Bank Account. There is a certain procedure you will have to follow and submit certain specified documents.
#1: Choose a Depository Participant (DP) like SAS Online, with whom you would like to open a DEMAT Account.
#2: Fill an account opening form and attach a passport-sized photograph along with photocopies of the proof of identity and proof of address
#3: A PAN Card is necessary. Carry the original documents for verification.
#4: You will be given a copy of the terms of agreement, rules and regulations regarding the new DEMAT Account and charges you will need to pay.
#5: SAS Online will conduct an in-person verification to verify details and information submitted earlier.
#6: Application will be processed and your DEMAT Account will be opened. You will also get the client ID (your ID) and account number. These will be needed for you to access your DEMAT Account.
#7: Charges: You will have to pay an Annual Maintenance fee for your DEMAT Account. Transaction fees will be separate if you buy/sell stocks. An additional charge will be levied to get your physical-form securities to be converted to digital form.
Please note that you can open a DEMAT Account even with a zero balance and no shares.
Below is a list of documents needed to open a DEMAT Account:
A. Proof of Income:
Submit any of the following:
- A photocopy of the Income Tax Return (ITR) Acknowledgement slip submitted to the Income Tax Department during tax filing.
- Certificate of Net Worth or photocopy of the annual statement of accounts authenticated by a Chartered Accountant.
- Salary Slip of the current month or Form 16.
- A statement of DEMAT Account holdings with an eligible Depository Participant.
- Latest statement of bank account containing the income history of last 6 months.
- Any documents that prove ownership of assets through self-declaration.
B. Proof of Identity
Any of the following will suffice.
- PAN card having a valid photograph.
- Aadhaar card / Voter ID card / driving license/ Passport.
- Identity card having applicant’s photo which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council, and Credit/Debit cards issued by Banks.
C. Proof of Address
Submit any one of the following:
- Passport/Voters Identity Card/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Flat Maintenance bill/Insurance Copy.
- Utility bills like landline telephone bill, electricity/gas bill which is not more than 3 months old.
- Bank Passbook which is not more than 3 months old.
- Self-declaration of new address given by judges of High Court and Supreme Court.
- Address proof which is issued by bank managers of Scheduled Commercial Banks/Scheduled Co-Operative Bank/Multinational Foreign Banks, Gazetted Officer / Notary public, Member of Legislative Assembly, Member of Parliament.
- Identity card containing address which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council.
- Address proof given in the name of the spouse
Often, new investors get confused between a Brokerage or a Trading Account and a DEMAT Account. Let’s see if and how they are different!
The difference between a Brokerage Account/Trading Account and a DEMATAccount
A DEMATAccount is an Account that only holds/stores your shares, bonds, government securities and mutual fund units in electronic form.Since 2014, SEBI has ruled that a DEMAT Account is mandatory to transact (buy and sell) shares in the stock market. A DEMAT Account can be opened through a SEBI registered broker called a Depository participant (DP).
Brokerage Account/Trading Account
A Brokerage Account is where transactions take place. It is an account that facilitates the buying and selling of various financial instruments. You don’t need SEBI approved brokers to open a brokerage account.
To simplify, a brokerage account is a link between a bank account and a DEMATAccount.
Shares are fine.But, Should You Hold Your Mutual Fund Units in a DEMAT Account?
While it is not mandatory to have a DEMAT Account to hold Mutual Funds, you can store Mutual Funds in a DEMAT Account if you so wish. Alternatively, you may also keep your Mutual Funds with the AMCs (Asset Management Companies). Mutual Funds can be sold/redeemed through a stock broker of the DP or the Exchange Platform like BSE Star or NSE MFSS.
It is important to note that there are some limitations if you store Mutual Funds in a DEMAT Account. Read about them, below:
- Other than having too many intermediaries, a DEMAT Account also has Annual Maintenance Charges to be borne.
- Importantly, investors cannot get SWP (Systematic Withdrawal) and STP (Systematic Transfer facility)in a DEMAT Account; like they can do a SIP (Systematic Investment Plan)
- Also note that joint account mutual fund investments cannot be held in a single holder’s DEMAT Account, and vice versa.
More importantly, transacting in liquid funds which mostly happens on the same day, can take place only through an AMC account. A DEMAT Account can prove a block to liquid fund transacting.
Advantages of Using a DEMAT Account
The advantages of using a DEMATAccount are many. Here are the top eight!
- A DEMATAccount allows you to hold your precious investments, especially shares in a secure and easy format.
- It eliminates the need of physical certificates and thus safeguards you against their loss, theft, damage or forgery.
- Securities can immediately be transferred from a DEMAT Account.
- For any bonus received or in the case of a merger or company consolidation, shares can be automatically credited to your DEMAT Account.
- All information of transactions and related, can be accessed by simply logging in to your DEMAT account.
- You don’t have to be near a laptop anymore to trade. You can trade on-the-go with a DEMAT Account- from your smart phone or desktop or laptop.
- A DEMAT Account means there is no stamp duty on shares; this translates into lesser costs for the investor, that is you.
- Due to its convenient features, investors can go in for frequent and large trade volumes.
A DEMAT Account is for everyone. From young students to working professionals of all ages. Here are some special tips for you from SAS Online.
DEMAT Advice and Tips for Students and Professionals
Whether you are a student or a working professional and whatever your age or profession, any kind of investment needs to be handled carefully and with due consideration at all times. You need to know that:
- A DEMAT Account is a must if you are planning to hold or trade in shares. It is a SEBI rule.
- You cannot hold shares in a physical form only, any more. You must have a DEMAT Account for the same, where you can convert the physical shares into an electronic form. This is also a safe way to hold shares
- You must be above 18 years of age to open a DEMAT Account
- Only by having a DEMAT Account, you will not be rich in stocks overnight. You will need to plan your investments carefully with the right advice to get the maximum returns.
- A DEMAT Account does not actually buy/sell shares. The buying/selling shares is done through a brokerage or a trading account. So, you need to have both, if you want to trade in shares.
- You can open a DEMAT Account online, and also open one with a zero balance and no shares.
- To open a DEMAT Account you need to have a Proof of Identity, Proof of Address and a Proof of Income.
- A DEMAT Account attracts annual maintenance charges plus transaction fees, so please make sure you know how much you are expected to pay
- Do your research on which DEMAT Account to open. Check for reviews on which is the best DEMAAT broker.Ask for word of mouth referrals, study the platforms, see if they have a good service and customer support.
- When you open a DEMAT Account, make sure you are regularly checking on what you hold there and make use of all the data-rich tips and alerts you will get.
Always, remember! A good investor is an informed investor!