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What is a Demat Account and How to open a Demat Account in India
Demat refers
to a dematerialised
account.
Though the
company is under obligation to offer the securities in both physical and
demat mode, you have the choice
to receive the securities in either mode.
If you wish to have securities in demat mode,
you need to indicate the name of the depository and also of the depository participant with whom you have depository account
in your application.
It is, however desirable that
you hold securities in demat
form as
physical securities carry the risk of being fake, forged or stolen.
Just as you have to open an account with a bank if you
want to save your money, make cheque payments etc, Nowadays, you need to open
a demat account if you want to buy or sell stocks.
HOW TO OPEN A
DEMAT ACCOUNT ?
Opening an individual Demat account is a two-step process: You approach a
DP and fill up the Demat account-opening booklet. The Web sites of the NSDL and
the CDSL list the approved DPs. You will then receive an account number and a DP
ID number for the account. Quote both the numbers in all future correspondence
with your DPs.
So
it is just like a bank account where actual money is replaced by shares.
You have to approach the DPs (remember, they
are like bank branches), to open yourdemat account. Let's say your
portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and
100 of ACC. All these will show in your demat account. So you don't have
to possess any physical certificates showing that you own these shares. They
are all held electronically in your account.
As you buy
and sell the shares, they are adjusted in
your account. Just like a bank
passbook or statement, the DP will
provide you with periodic statements of holdings and transactions.
Is a demat account a must? Nowadays, practically all trades have to be
settled in dematerialised form. Although the market regulator, the Securities
and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be
settled in physical form, nobody wants physical shares any more.
So a demat account is a must for
trading and investing. Most banks are
also DP
participants, as are many brokers. You can choose your very own
DP.
To get a list,
visit the NSDL and CDSL websites
and see who the registered DPs are.
A broker is
separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf
and on behalf of his clients.
A DP will just
give you an account to hold those shares.
You do not have
to take the same DP that your broker takes. You can choose your own.
Banks are also advantageous because of the number of branches they
have. Some banks give the option of opening a Demat account in any branch, while
others restrict themselves to a selected set of branches.
Some private
banks also provide online access to the Demat account. So, you can check on your
holdings, transactions and status of requests through the net banking facility.
A broker who acts as a DP may not be able to provide these services.
DEMAT ACCOUNT OPENING COST AND OTHER CHARGES
The cost of
opening and holding a Demat account. There are four major charges usually levied on a Demat account:
Account opening fee, annual maintenance fee, custodian fee and transaction fee.
All the charges vary from DP to DP.
Depending on the
DP, there may or may not be an opening account fee. Private banks, such as ICICI
Bank, HDFC bank and UTI bank, do not have it. However, players such as Karvy
Consultants and the State Bank of India charge it. But most players levy this
when you re-open a Demat account, though the Stock Holding Corporation offers a
lifetime account opening fee, which allows you to hold on to your Demat account
over a long period. This fee is refundable.
Annual maintenance fee: This is also known as folio maintenance charges, and is
generally levied in advance.
Custodian fee: This
fee is charged monthly and depends on the number of securities (international
securities identification numbers – ISIN) held in the account. It generally
ranges between Rs. 0.5 to Rs. 1 per ISIN per month.
DPs will not
charge custody fee for ISIN on which the companies have paid one-time custody
charges to the depository.
Transaction fee: The transaction fee is charged for crediting/debiting
securities to and from the account on a monthly basis. While some DPs, such as
SBI, charge a flat fee per transaction, HDFC Bank and ICICI Bank peg the fee to
he transaction value, subject to a minimum amount.
The fee also
differs based on the kind of transaction (buying or selling). Some DPs charge
only for debiting the securities while others charge for both. The DPs also
charge if your instruction to buy/sell fails or is rejected. In addition,
service tax is also charged by the DPs.
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