Do you get puzzled when you hear news like this month five or six lakh new demat accounts were opened?
Do you wonder what is a demat account?
Should you open one?
In today’s blog, we will be helping you learn everything about a demat account in the simplest manner possible, so even a person from a non-finance background could understand.
What is a Demat account?
To put in plain words, a demat account is like an account where you could keep all your shares. Just like in a bank account, you can put your money, in a demat account you could keep your purchased shares. Additionally, in a demat account, you can also add money to trade stocks, derivatives, commodities, and currencies. To know more about trading, you can refer here
Demat accounts are provided by brokers. These brokers could be broadly categorised as full-service brokers and discount brokers. Full-service brokers such as ICICI Direct, Kotak Securities, Motilal Oswal, SBI Securities etc. offers offer additional services to investors apart from transactional facility at exchange. These brokers often provide advisory services, research reports, and a relationship manager to their demat account holders. They also provide Mutual Funds, Insurance, IPO, Debt and Loans. Their brokerage services cost is usually a lot high.
On the flip side, discount brokers such as Angel One, Zerodha, Groww, etc. offer low-cost online brokerage services by reducing their operation cost through the help of technology. They do not offer any additional services that are usually offered by a full-service broker.
Do you need a Demat account?
If you are someone who wants to invest or trade in stock markets, a good demat account is a must for you. If you are not someone who trades or invests, you must start investing at least. With rising inflation and falling FD rates, the monetary value of your savings is falling rapidly. The solution to this problem is investing.
Even if you do not have time or knowledge to invest into stocks, you must invest a good chunk of your savings into index funds for a minimum of 5 years, after getting some knowledge. So as per our opinion, a demat account is recommended for anyone who wishes to save for their financial goals.
What do I need for opening a Demat account?
To open a demat account, you need to have your PAN, Aadhar, and a Bank account. To get derivatives (Futures and Options segment) open for yourself, you need to have your salary slips as this segment is much riskier than others.
However, if you are an NRI or NRE, you would need a few additional documents to get your demat account opened. The list of documents needed as well as the information about the account opening process would be provided by the broker.
Surprisingly, even a minor’s demat account can be opened in India. However, the demat account cannot be used independently by the minor. Such a demat account is technically owned by the minor, but a parent or legal guardian is required to open, close, and manage the demat account until the minor turns 18. The guardian for the minor’s demat account holder must be the minor’s father, or in his absence, the mother. If neither parent is available, a guardian appointed by a court could help in opening the demat account.
While opening a demat account, you must keep an eye on the following items or charges:
- Brokerage Plan: Before opening a demat account, you must know what charges you would be paying while transacting in your demat account. Sometimes, the charges for a certain segment are higher that you would have expected. As a result, you would end up paying a huge chunk of your profits as charges and in an event of loss, you will end up losing your capital.
- AMC Charges: AMC or Annual Maintenance Charges are the fees levied by the broker to maintain your demat account under them. This charge could be levied monthly, quarterly, annually or could even be a one-time payment. You must have an idea about AMC fee, and your chosen plan (if selecting frequency of AMC debit is available).
How to open a Demat account?
The process of opening a demat account is simple and could be done online. All you need to do is keeping your documents ready and visit the broker’s website. Click on open a new demat account and then you must follow the instructions provided on their website. To open a Demat account under us, click here!
Happy Investing!
