Dematerialisation is the process of converting the physical share certificates into electronic form, which is a lot easier to maintain and is accessible from anywhere throughout the world. An investor who wants to trade online needs to open a Demat with a Depository Participant (DP). The purpose of is to eliminate the need for the investor to hold physical share certificates and facilitate a seamless tracking and monitoring of holdings.
Earlier, the share certificate issuance process was time-consuming and cumbersome, which Demat has helped transform by speeding the entire process and storing security certificates in digital format. Once your Demat account is active, you can convert paper certificates into digital format by submitting all your physical securities along with a Dematerialisation Request Form (DRF). Also, remember to deface each physical certificate by mentioning Surrendered for Dematerialisation’ on it. You will receive an acknowledgement slip when you surrender your share certificates.
Transferring Shares between Depository Participants.
An investor may wish to transfer securities from one demat account to another. When different DPs operate the two demat accounts in question but on the same central depository, the investor needs to fill out the Intra Delivery Instruction Slip and submit the filled slip to their DP. However, if the DPs are on different central depositories, then the investor will fill out the Inter Delivery Instruction Slip.
Executing the DIS on the same day as submission requires the investor to submit the DIS when the market is on. This also ensures that there is no delay in the execution of the transfer. the broker managing the transfer may charge a transfer fee.
Trading using demat and trading accounts Once you have both a demat and a trading account, you can engage in some online trading. Let’s take a look at two scenarios, to understand how your demat and trading accounts work in tandem to help you trade in financial securities.
When the investor wants to buy from your trading account, you can place an order to buy shares. Next, the order gets processed at the stock exchange level, and the shares you have bought get credited into your demat account.
When the investor wants to sell from your trading account, you make the order to sell an x amount of a particular security. The action gets carried out at the exchange level, and your demat account is updated to reflect the debited securities.
The trading can happen online or on call depending on the policy of your broker/firm. If you are requesting a transaction over the phone, have your account details ready as your broker will need to provide those details to complete the transaction.
The exchange verifies the account information provided before commencing the trade. It will ensure the availability of the shares you wish to trade, note the market price, and only then carry out the transaction.
It is advisable to link your demat and trading accounts before you start trading so that you don’t have to repeatedly provide the account details each time you make a transaction. Even better is to have your demat and trading accounts with the same firm to remove any additional stakeholders.
Types of Demat Account
There are three types of demat accounts which can be opened in India, depending on the residential status of the investor: -
Regular Demat account:
This type of Demat account is available to all investors in India. You can approach any depository participant (DP) of your choice to open a regular Demat account. The difference between regular Demat accounts with the other types is that it doesn’t offer additional facilities like international fund transfer.
Repatriable Demat account:
NRIs who hold a non-resident rupee account (NRE) can open this type of Demat account. This account allows the international transfer of funds.
Non-repatriable Demat account:
non-resident Indians with a non-resident ordinary rupee (NRO) account can open this type of Demat account. However, this does not allow for international transfer of funds.
Things to Remember when you Open a Demat If you are new to the market investor, you need to be mindful about certain essential pointers while you open a Demat. Here are some of those.
Linking is essential:
Opening Demat is only half of the job. To start trading, you need a trading account and must link it with the Demat. Without a trading account, Demat account is merely a depository account to store your investments. Be aware of charges: You must already know that charges vary widely between brokers, depending on their types and nature of services offered. Based on the style and frequency of your trading, you need to select between a discount broker or full-service broker. Update correct data: When opening the account, double-check the details provided by you. Any error in your application will get it rejected.
Also, if you want to change your mobile number or email id, update the same information with your DP to keep receiving regular updates on your account. Add nominee: Naming nominee is something we ignore, but it is absolutely essential. Adding a nominee to your Demat will help you eliminate lots of hassles in the future, like transferring shares.
While opening a Demat it is mandatory to add a nominee at the beginning. Be vigilant: Nowadays, most DPs will send you regular transaction/activity updates on your account through SMS and emails. Demat accounts are safe but not protected from fraudulent activities, and so, the responsibility comes to the investor to keep a check on the activities happening in the account and take timely action. Now that you have a working idea of how demat and trading accounts work and know how easy it is to open a demat account online, head to the ‘open demat account’ page and fill in your details in a few minutes!