Demat Account is also known as Dematerialized account, it works on the bases of dematerialization which means the process of transferring your physical documents into an electronic form.
Basically, you can easily access all your documents at any time. The main objective of dematerialization is you can easily track and monitor your shares without holding them physically, overall it converts physical shares into electronic forms.
Demat account is a type of electronic account(Digital Account) which helps investors to hold and trade securities such as mutual funds, stockholders, and other financial instruments in an electronic or digital format.
In the past before demat accounts, investors had physical documents for their securities and also had a responsibility to save them, so there would be the chances for robbery or stolen, missing, etc.
to solve these problems demat accounts were introduced and it changes their securities holding system it converts all physical documents or certificates into electronic and digital forms.
How Do Demat Accounts Work?
- Opening an Account: To open a demat account, you need to approach a registered depository participant (DP), which can be a bank, financial institution, or brokerage firm.
You will be required to submit the necessary documents such as identity proof, address proof, and PAN card details.
Once the application is processed and approved, you will receive a unique demat account number.
- Depository Participants: It (DP) acts as an intermediary between the investor and the depository.
They facilitate managing and opening accounts, transactions, etc.
They also provide access to account holders to see and manage their securities etc.
- Holding Securities: Once you open a demat account, you can hold various types of securities such as mutual funds, shares, bonds, government securities, and exchange-traded funds (EFCs) in electronic form.
Whenever you buy shares, mutual funds, and other securities, they can automatically credit into your demat account. - Account Statement and Holding Statements: Deposit Participants (DP) actually provide statements for your demate account so you can find your securities details.
These statements provide your securities information like quantity, value, and transaction related to your holdings.
You can also access your account statements for real-time updates. - Dividends and Corporate Actions: Dividends declared by companies and other corporate actions like bonus issues, rights issues, and stock splits are automatically credited to your demat account. This eliminates the need for physical dividend warrants and simplifies the process of participating in corporate actions.
- Dematerialization and rematerialization: Dematerialization is the process of converting physical securities into am electronic forms.
To dematerialize to physical share certificate, you need to submit them to the deposit participants(DP) along with a demat request form.
The DP verifies the documents and updates your demate accounts with the electronic equivalent of the securities.
Conversely, rematerialization involves converting electronic securities back into physical certificates. - Trading and Transaction: With the help of your demat account which is linked to your trading account you can buy and sell securities,
when you buy new securities, your own securities will be debited from your account and when you sell your securities your account will be credited with new securities, these all transaction procedures will be in electronic forms.
How to open Demat Account?
- Choose a depository participant (DP): It acts as an intermediary between investor and depositor to open and offer demat account services.
- Fill out the account opening form: To collect the account opening form, you need to visit (DPs) website or DPs branch office and fill out your details.
- Submit the necessary documents: Submit your required document such as passport-size photos, adhaar card, pan card, voter ID, and driving license photocopy.
- Complete the in-person verification(IPV): Some DPs may require an in-person verification process. You might need to visit the DP’s office or a designated location to complete the IPV. The DP representative will verify your original documents and confirm your identity.
- Sign the agreement: Sign the terms and conditions for the account opening agreement and other relevant documents provided by the DP.
- Pay account opening charges: Pay the required charges for account opening annual maintenance fee for the demat account.
- Receive your demat account details: Once you went through the process of opening a demat account, you will receive your demat account number, client ID, and other relevant details. These details will be necessary for accessing and managing your account.
- Link your demat account to a bank account: It facilitates your transactions, buying and selling funds, and settlement of trades.
Opening a demat account involves choosing a good depositor participant(DP), filling out an application form, submitting the required documents, undergoing verification, signing agreements, and funding the account.
It’s crucial to research different DP and compare their offerings before making a decision. Once your demat account is opened, you can start buying, selling, and holding securities electronically.
Conclusion
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