A Demat account stands for Dematerialisation Account. Creating a Demat account is a step that one investor has to follow for investing in equity shares. A Demat account makes the process of holding shares and securities in a dematerialized or electronic format easier. The purpose of this account is to convert the share certificates from physical form to electronic form. This eventually provides better accessibilities.
Steps to open a Demat account
1. The first and foremost step to open a Demat account is to choose a depository participant (DP). Banks or stockbrokers or online investment platforms are present in India to offer DP services.
2. Then comes the part to pay a visit to the DP's website. On the website, they put online Demat account opening form. The investor needs to fill the form up. Some of the depositaries offer both trading and Demat accounts. There the investor will also get to know about the statement of fees and charges for maintaining the account. So, the investor can compare different DPs in terms of their charges. Here, the investor should put someone as a nominee of the account. Additionally, linking the Demat account with the trading account is important; a trading account is a necessary tool for trading shares in the stock market.
3. After filling the Demat account form, the investor will have to share the information on Know Your Customer (KYC) norms. The scanned copies of the KYC documents including identity proof, address proof, bank account statement and income proof will have to be submitted and documents that will prove ownership of assets through self-declaration. An authentic PAN card and Aadhaar Card are two very important documents for this step. For address proof, multiple documents can be used like the Aadhaar card, ration card, voter's card, electricity bill, etc. A copy of the bank account passbook or the bank statement which is not older than three months is required. Income proof documents like the latest salary slips or Income Tax Return will be required. Income Tax Return is mandatory to have for the currency and derivatives segment.
4. The fourth and one of the most important and mandatory steps is to verify. This process is known as 'In-Person Verification' or IPV. Most of the DPs do this process online via webcam on a computer or a smart. But in some cases, a DP can also ask the investor to be present at their office physically. However, they try to do it online mostly. It will prove the authenticity of the investor that no fake account is created through the particular DP. Through this process, any misinformation can also be avoided.
5. Then the next process is an easy one. The investor will have to go through all the documents very well and sign an agreement with the DP. This agreement includes the duties and rights of the DP and the investor.
6. After signing the agreement, the form of the investor will be checked thoroughly by the DP and then it will be processed if all documents are completely fine and approved.
7. Then the investor will be given a unique Beneficial Owner Identification Number or BO ID. The BO ID is used to access the Demat account online.
Why it is important?
A Demat account can be used to hold investments like equity shares, exchange-traded funds, mutual funds, bonds, debentures, and also government securities. But one can have a Demat account without even possessing any share.
Indians are being more comfortable to take risks in terms of their finance that is pushing them towards investing in stocks rather than the traditional fixed deposits options. Hence the number of new Demat account openings has been increasing in the country for the last few years.