In 2016, the demonetization policy changed the way we buy and sell things. It was a step towards making India a cashless economy. Similarly, 20 years before demonetization, India witnessed the Dematerialization phase.
In 1996, a step was taken to free the stock market of physical share certificates. Back then, shares were sold in physical form. If you wanted to buy a share, you paid cash to the trader and got a certificate. Imagine the amount of paper each investor had! Encashing these stocks was also time-consuming. The dematerialization policy aimed to convert the physical certificates into electronic form and simplify the process.
What is a Demat account?
Just like a bank account holds money, a Demat account holds shares, mutual funds, bonds, government securities, and electronic traded funds (ETFs). Every time you buy a share, it is credited to your Demat account and vice versa. It is mandatory for every investor to have a Demat account.
Role of a depository
India has two depositories: NSDL and CDSL. They hold the details of all the Demat accounts in India in electronic formats. You can open a Demat account with any of the two depositories. They facilitate the buying and selling of securities.
Role of a depository participant (DP)
Once you have finalized a depository, you can open a Demat account with any of its DP. A DP is like a retailer. For example, you want to buy a Nestle's Maggi or Cadbury’s Dairy Milk. You will not visit the office of Nestle or Cadbury. You can buy these products from a local supermarket or grocery store. Similarly, you can open an account to be able to transact in securities with a DP. It could be an NBFC or broker or a bank. SAS Online is a reputed DP that facilitates online transactions in the stock market.
How to open a Demat account?
- Select a DP: Choose the one that offers good services. You can also select a DP that offers online services like SAS Online by visiting the site www.sasonline.in.
- Application: Submit a duly filled Demat account opening form along with copies of KYC documents. These include PAN Card, proof of address, proof of identity, and bank account details.
- Documentation: On submitting all the documents you receive a copy of rules and regulations and the charges you would incur. A copy of the terms of the agreement is also submitted.
- Verification: A personnel from DP will visit you in person or call you to verify all the information furnished to them.
- Account number: On successful completion of the verification, you will get a unique account number and ID from the DP.
You can now operate your Demat account online. You are liable to pay an annual maintenance fee and a transaction fee.
Benefits of Demat account
- Your shares are secured as high-level of data privacy standards are followed.
- You can invest in shares anytime anywhere.
- Electronic settlements are faster.
- No risk of theft, loss, non-delivery of certificates.
- You can buy and sell as less as one share.
- In one account you can transact in shares as well as debt instruments.
- Physical securities incurred an extra cost of stamp duty. Demat account saves that cost.
- Easy to maintain and track.
The dematerialization policy has proved to be a boon for all investors. Will all these benefits and ease of transactions, investing has become easier for beginners too.