An account where one can hold shares and securities in electronic form can be called as Demat Account. It is mandatory to have a demat account if you want to buy and sell shares in India through the stock exchanges. Also, if you want to apply for shares in an Initial Public Offering (IPO) you may have to apply in the demat form only.
As per SEBI guidelines shares cannot be bought and sold in any form except in dematerialized form.
Here are 6 must know points before opening an account
There are two Depositories in India - the National Securities Depositories Limited (NSDL) and the Central Depository Services Limited (CDSL), through whom the shares are held by the various depository participants.
Depositories hold securities such as shares, debentures, bonds, government securities, mutual fund units etc.
2) Depository Participants
Depository participants are the intermediary between investors and depositories. To avail any services from the depository, an investor needs a depository participant.
The process of converting your physical shares into electronic form is termed as dematerialization.
4) Basic Services Demat Account
This account can be opened by an individual or can be transferred from existing demat account to Basic Service Demat Account.
If the holdings in your demat account such as securities, stocks, mutual funds, bonds etc is less than Rs 2 lakh then you can convert your existing account.
For customers having holdings from Rs. 0 to Rs. 50,000 there will be no charges. There will be a charge of Rs 100 if holding value is between Rs 50,001 to Rs 2 lakh.
5) Charges Involved
Charges and fees differ from institutions and also depends on the type of account and amount of transactions.
Account opening fee, annual maintenance fees, transaction or brokerage fee are some of the charges involved in having a Demat account.
6) Benefits of opening Demat Account
There will be no hassles in keeping the shares in physical forms. No odd lot issues, and shares even one share can be bought and sold. Stamp duty on transfer is not applicable. Transfer deed is not required if the shares are held in electronic form. Read more