The Indian stock market system requires that securities be held in electronic format for instances of trading and investment. A dematerialized account or Demat account is one type of account that serves to store shares and other securities electronically, taking away the need for paper certificates.
What is a Demat Account?
A Demat account helps investors hold shares and electronically manage them. This account is maintained by depository participants (DPs), which are intermediaries registered with the two central depositories in India: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
A Demat Account is Required
The activities, based on which a Demat account is required, include:
Buying and selling securities from stock exchanges, such as the NSE or the BSE.
Holding shares and securities comprising bonds, mutual fund units, ETFs, and government securities.
Participation in IPOs (Initial Public Offerings).
Receiving corporate benefits in the form of dividends, rights issues, and bonus shares.
An individual without a Demat account cannot participate in the Indian capital or securities markets.
Types of Demat Accounts
However, before knowing how to open one’s own Demat account, one must know the categories of Demat accounts:
Regular Demat Account: Maintenance of all account-related activities for Indian residents with equity trading and other financial instruments.
Repatriable Demat Account: For NRIs interested in Indian investments and transfer of funds abroad. Requires NRE bank accounts.
Non-Repatriable Demat Account: Tailored to NRIs who do not want to transfer funds abroad. Requires an NRO bank account.
Documents To Open a Demat Account
The following documents are required to open a Demat account:
Proof of Identity: PAN card (mandatory), Aadhaar card, passport, voter ID, or driving license.
Proof of Address: Aadhaar card, passport, voter ID, utility bills, or bank statement.
Bank Proof: Canceled cheque or bank passbook.
Income Proof (for derivatives trading)—Salary slip, ITR, or bank statement.
Photograph: Passport-size photo.
How to Open a Demat Account: Complete Process Step-by-Step?
- Choose a Depository Participant (DP)
Understanding opening a Demat account means choosing a DP. A DP serves as a bridge between you and your trading account and would ultimately include brokers, banks, and online investment platforms that offer Demat services. Hence, before getting the DP selected, a comparison based on brokerage fees, annual maintenance charges (AMC), trading platform, and customer service should be undertaken.
- Fill out the Occupied Account Opening Forms
Visit its website or office to fill in the account opening form with the selected DP. There are a lot of brokers that offer online applications—paperless and with Aadhaar-based eKYC.
- Submit KYC Documents
Upload or submit the necessary outdoor documents for identity and address verification. Most online DPs use the Digilocker platform to fetch documents directly from the government database.
- Complete In-Person Verification (IPV)
IPV is mandatory, as required by SEBI, to perform an enliven check against the applicant. This may take place through a video call or a short recorded clip, during which the applicant must keep original documents for verification.
- Sign the Agreement
The investor has rights and duties that are expressly mentioned in the agreement, in addition to the DP’s rights and duties. This is a typical SEBI-regulated provider agreement.
- Receive Client ID and Login Credentials
Once the application has been processed, the DP will provide a client ID, along with login credentials and a Demat account number. This is important for all future transactions.
How to Open a Free Demat Account with Low Brokerage?
There are currently several DPs offering the option of opening a free Demat account with a small fee as part of their services. Here is a guide on how to do it:
- Select a Zero Account Opening Fee Broker
Many online discount brokerage firms are offering free opening of accounts for Demat processes. Most discount brokers waive these account opening charges and offer only essential services without any upfront cost.
- Check Brokerage and AMC Structure
It is usually free during account opening, yet it is necessary to define the actual brokerage structure. Discount brokers generally use low or flat brokerage models. Consider checking the annual maintenance charges. Some brokers also forgo AMC for the first year, while other brokers offer zero A/C charges.
- Comparison of Trading Platforms
The experience of trading depends on how well the platform is user-friendly, accessible, and has requisite features. Ensuring the broker is committed to providing a stable mobile and web-based trading app with basic research tools is crucial.
- Use Online KYC to Save Time
BTW, to be clear regarding the opening of a Demat account, many DPs allow opening KYC online, while processing is done through Aadhaar-based authentication for identity verification, video IPV, and digital signing, thus reducing paperwork and enabling same-day activation of many of the new accounts.
How to Use a Demat Account?
Once you have opened a Demat account successfully, you can:
Buy shares through the connected trading account. The shares will automatically be credited to your Demat account.
Sell shares when needed. On executing the sell order, the shares will be debited from your account.
Track holdings and portfolio using the broker’s app or CDSL/NSDL portal.
Subscribe to IPOs using your Demat account number and PAN.
Nominate a beneficiary to ensure easy transfer in the event of the account holder’s death.
Final Lines
Opening a Demat account is the first step toward investing in the Indian stock market. This guide for beginners explains how to open a Demat account, along with the opening of a free Demat account with low brokerage. Thus, prospective investors will be able to understand the requirements, compare brokers, and follow the procedure under the rules to start trading in an organized and lawful way.