Investing in the stock market may be a rewarding way to boost one’s wealth, but it can also be confusing, especially if one is new to the market. Numerous technical jargons exist that might be complicated, but understanding them is essential for making informed investing decisions. One such term is a demat account.
People are becoming more interested in putting money into the stock market as the digital era gains traction. Demat account opening is rising in India, with the mark crossing 100 million accounts in 2022. With the rising number of demat accounts, one needs to understand what a demat account is and how to open it.
What is a Demat Account, and Why Is It Essential?
A demat or dematerialized account is a digital account used in India to hold securities such as shares, bonds, ETFs (exchange-traded funds), and mutual funds in electronic format. A demat account eliminates the need for holding physical certificates of securities and helps reduce the risk of fraud or loss.
To invest/trade in the Indian stock market, one must open a demat account and then a trading account (i.e. facilitates the buying and selling of shares).
A demat account’s importance lies in several factors:
- It allows one to hold securities electronically, making it easier and more efficient.
- As securities are stored electronically, it reduces the risk of loss or fraud compared to having physical certificates.
- Holding securities in a demat account can be more cost-effective as it eliminates the need for physical certificates and reduces transaction costs.
- In addition to using it as a safe place to store securities, the financial instruments held in the account can be used to acquire loans, i.e., the securities in the Demat account can be utilized as collateral.
Step-by-Step Process for Opening a Demat Account
The first step in setting up a demat account is to select a Depository Participant (DP) based on one’s needs. Depository Participants are often stock brokerage firms that allow the demat account opening along with a trading account and provide a trading platform, market information, and other services.
The steps to open a demat account are as follows:
- Once the DP is chosen, fill out the demat account opening form. It can be obtained from the DP or can be filled out online on the DP’s website. To get started, provide a mobile number and email address.
- Now, provide details, like PAN card details, basic information, and address.
- After filling out all the information, upload the scanned documents for KYC, such as income proof, photo, and bank details.
- Complete IPV (In-Person Verification), i.e., recording oneself for 30 seconds to verify the authenticity of the documents. During the recording, keep the PAN and other documents ready and read all the details clearly and loudly.
- E-sign the form, i.e. do an electronic signature on a white background and upload it as required in the demat account form, along with the mobile number linked to the Aadhaar card.
- Once done with the above steps, please review the entire application to ensure accuracy and submit it.
Once the application is evaluated and approved, the applicant will receive the Demat account number and login credentials.
Conclusion
A demat account is a must for anybody who wants to invest in shares and securities. Demat accounts have improved the accessibility and efficiency of trading and investing and the safety of buying and selling securities.
In addition, physical certificate upkeep can be time-consuming and unsafe, but a demat account streamlines the procedure and eliminates the risk of loss or fraud. Opening a demat account is straightforward and can be done online. The only prerequisite is to choose a DP after careful analysis.
Read also: 4 Easy Steps To Start Trading In India
