How to open a demat account online in India?
Investing in the stock market has become a buzz word in the last couple of years. We have seen unprecedented interest of young investors in the capital markets during Covid time. If you too want to start your investment journey, opening a Demat Account Online is your first step. Here, in this article, we'll cover everything you need to know about opening a Demat Account, types of Demat accounts, fees and charges and mistakes to avoid.
- What is a Demat Account?
- Types of Demat Accounts
- Eligibility Criteria to Open Demat Account
- Choosing a Depository Participant (DP)
- Steps to Open a Demat Account
- Demat Account Fees and Charges
- Tips for Maintaining Your Demat Account
- Benefits of Having a Demat Account
- Common Mistakes to Avoid While Opening a Demat Account
- How Demat Account affects your taxes
- How to close Demat Account?
What is a Demat Account?
A Demat Account holds your stocks, bonds, and other securities in a dematerialized or electronic form. The need for a Demat Account arose after the Securities and Exchange Board of India (SEBI) mandated dematerialisation of shares and securities in 1997. A Demat Account works like a bank account, where securities are credited or debited when you buy or sell them. The account is maintained by a Depository Participant (DP), who acts as an intermediary between the investor and the depository.
Types of Demat Accounts
Majorly demat account are of three types in India, as mentioned below:
1. Regular Demat Account
2. Repatriable Demat Account
3. Non-Repatriable Demat Account.
Regular Demat Account is used by Indian resident investors who want to hold their shares and securities in electronic form. Repatribale & Non Repatriable Demat Accounts are suitable for NRIs. Repatriable Account allows transfer of funds to the home country while Non Repatriable account doesn’t allow the transfer of funds. Further regular Demat can be further classified into Basic Services Demat Account. BSDA is for investors who hold a small number of securities. These accounts have lower charges than regular demat accounts and are intended to encourage inclusion in the securities market.
Eligibility Criteria to Open Demat Account
Anyone who is 18 years of age and is an Indian citizen, NRI, or OCI can open a Demat Account. To open an account, you'll need to provide identity proof, address proof, and a PAN card. NRIs and OCIs must also submit additional documents, such as a copy of their passport and an overseas address proof and OCI card, as applicable. However, NRIs and OCIs are not allowed to invest in certain types of securities such as government securities and small savings instruments, unless they obtain special permission from the Reserve Bank of India.
Choosing a Depository Participant (DP)
A Depository Participant (DP) is an entity authorized by the Depository (National Securities Depositories Ltd and Central Securities Depositories Ltd) to provide Demat Account services to investors. A DP acts an intermediary between the investor and the depository. When choosing a DP, it's important to consider factors such as DP’s reputation, fees and charges, customer service, and the range of services offered. There is a list of DPs available on the websites of the two depositories – NSDL and CDSL. Make sure, you sign up with an authorised DP only.
Steps to Open a Demat Account
You can complete the process of opening a demat account within 10 minutes online. The first step is to choose a DP and then, fill out the account opening form, and submit the necessary documents to the DP. The documents required include a PAN card, address proof, and identity proof. After submitting the documents, authenticate your identity and link your bank account to the Demat Account. You can either open a Demat Account online or visit a DP's office to complete the process.
Demat Account Fees and Charges
There are different types of fees and charges associated with a Demat Account, such as account opening charges, annual maintenance charges, and transaction charges. The fees and charges vary from one DP to another. Additional charges may also include fees for pledging or unpledging securities, account reactivation, and account closure. It's essential to understand these fees and charges before opening a Demat account, as they can impact your returns and affect your investment strategy. Thus, you should always compare the fees and charges of different DPs before choosing one.
Tips for Maintaining Your Demat Account
One of the most important tips to maintain your demat account is to regularly check your account statement and keep guard against any unauthorized transactions or discrepancies. Report a red flag to your broker immediately. Next, always keep your contact information updated with the DP. This will ensure that you receive timely updates and notifications about your Demat Account. Further you can protect your Demat account from unauthorized access by choosing a strong password and changing it regularly. Never share your login credentials with anyone, and avoid logging in to your account from public computers or unsecured networks.
Benefits of Having a Demat Account
A Demat account provides a safe and convenient way to hold securities electronically, eliminating the need for physical certificates. It also reduces the risk of loss or theft of securities and minimizes the chances of fraud. With a Demat account, you can easily buy and sell securities online, track your investments, and receive dividends and bonuses automatically. It also simplifies the process of pledging securities as collateral for loans. Overall, a Demat account offers greater flexibility and efficiency in managing your investments.
Common Mistakes to Avoid While Opening a Demat Account
Some of the common mistakes that investors make while opening a demat account are:
Choosing the wrong broker: It is important to choose a reliable broker to open a Demat Account. Do some research on the broker's history, reputation, fees and charges, customer service before making a decision.
Not reading the fine print: Before signing up for a demat account, carefully read the terms and conditions, account opening forms, and other documents. Make sure you understand all the fees and charges associated with the account.
Not providing accurate information: You should always provide accurate personal and financial information while opening a demat account.
Ignoring security features: Ensure that the broker has adequate security measures such as two-factor authentication, secure servers etc in place.
Not keeping track of your account: Once your account is open, make sure to keep track of your investments. Regularly review your portfolio, check for any unauthorized transactions, and keep your contact information up to date.
How Demat Account affects your taxes
You should consult a tax professional to understand how to manage taxes related to your demat account transactions. Some of the applicable taxes include:
Capital Gains Tax: Capital gains tax is applicable on profits from the sale of capital assets. There are two types of Capital Gain taxes based on tenure of securities held: short-term capital gains tax (STCG) and long-term capital gains tax (LTCG).
Securities Transaction Tax: When you buy or sell securities, you are required to pay securities transaction tax (STT) to the government. STT is a tax levied on the value of the transaction, and the rates vary depending on the type of security.
Tax Deducted at Source (TDS): If you earn interest or capital gains from certain securities, such as bonds or debentures, the issuer or the stock exchange may deduct tax at source.
How to close Demat Account?
The first step to close a demat account is to contact your broker and inform them of your decision to close the account. They will guide you on the process and provide you with the necessary forms and documents required for account closure. Fill out the necessary forms.
Before you can close your demat account, you need to ensure that there are no pending dues or obligations such as unpaid fees, pending transactions, and outstanding balances. Once you have filled out the account closure form and cleared all dues, submit the forms to the broker. Wait for few days for an acknowledgement receipt.
By following the steps outlined in this guide, you can ensure that you have all the necessary documents and information before beginning the application process. Remember to choose a reliable and reputable stockbroker, as they will be responsible for holding your securities and managing your investments. With your Demat account, you can invest in stocks, mutual funds, and other securities easily and conveniently. So, take the first step towards investing today by opening a Demat account and start building your portfolio.