Demat Account enables people to hold Shares and securities electronically. When physical share certificates were no longer accepted, this idea was brought to Indian markets in 1996 as a substitute.
These accounts can also be used to build a portfolio of one’s equities shares, ETFs, bonds, debt instruments, mutual funds, and government securities, among other things. Therefore, if you want to invest in the stock market in India, you must open a Demat account.
A Demat account simplifies changing your physical share certificates into an electronic format. The term “dematerialization” refers to converting one material into another. Like a bank account, a Demat account gets credited or debited every time you purchase or sell shares of a publicly-traded firm. It eliminates the need for actual shares and facilitates convenient trading for the users, encouraging seamless tracking and monitoring of holdings during online trading.
When it comes to a Demat account, exactly how does it work?
Two other accounts, namely your bank account and your trading account, aid in the operation of your Demat Account and make it more effective. Trading accounts are the only way to buy stocks in the stock market. Stock purchased through the trading account is kept in a Demat account. The following steps will show you how a Demat account works step-by-step:
- When you buy or sell a particular share, you first need to log in to your trading account, which is also linked to your bank account.
- When a ‘buy’ or ‘sell’ order request is placed in the trading account for a specific stock, your Depository Participant (DP) immediately forwards this to the stock exchange.
- If your request is to buy, the stock exchange looks for a seller who wants to sell the same shares and sends an order to clearance houses.
- The clearance houses then settle the trade by debiting a particular number of shares from the seller’s Demat Account and crediting it to the buyer’s Demat Account.
Features & Benefits of Opening a Demat Account
Investors who opt to open a Demat account can enjoy several benefits. Here are some of the most common benefits:
- Demat accounts eliminate the risk of damage, misplacement, forgery, or theft of physical shares.
- The electronic system is also considerably simpler and can easily do seamless transactions in much less time.
- You can easily merge your bank accounts with Demat accounts to facilitate electronic fund transfer.
- If you have registered for a net banking facility, you can also access your Demat Account in a remote location.
- Facilities offered by Demat Account
Eligibility Criteria to Open a Demat Account
If you meet the following requirements, you can open a Demat account:
- A depository participant can open a Demat account for any Indian resident or non-resident.
- In the case of minors, a Demat account can be opened in their name as long as a legal guardian keeps tabs on it.
- A maximum of three account holders, including the primary account holder, can open a Demat account.
Documents Required to Open a Demat Account
Before providing the required documents, you should ensure that the papers are valid as the submission date and haven’t crossed the expiry date. Here is an important list of documents that you require to open a Demat account:
- Proof of Income: ITR acknowledgment slip submitted to Income Tax Department, Salary Slip or Form 16, statement of Demat account holdings with eligible depository participant, latest bank statement of previous six months – all self-attested.
- Proof of Identity: PAN Card, aadhaar card, voter ID card, driving license, passport, identity card issued by central or state government, public financial institutions, bar council, and other professional bodies.
- Proof of Address: Passport, voter’s identity card, ration card, driving license, utility bills such as telephone or electricity bill, bank passbook, etc.
- A passport-sized photograph.
A Guide to Paytm Money’s Demat Account Opening
- Visit the Paytm Money Account Opening Link: Click here
- Enter your Pan Card information and submit your request.
- You must submit an address proof that includes your Aadhar Card information.
- Please provide your bank account information for depositing and withdrawing money from the Demat Account.
- All that’s left is for you to sign the AOF (Account opening form) electronically.
- Paytm Money’s KYC team will take care of the rest of the process to open a Demat account after you submit all the relevant information.
- After completing the KYC process and opening a Demat account, you can begin investing in shares.
Before Demat, investing in stocks was time-consuming and cumbersome due to a lot of paperwork. Before 1996, managing all of the paper securities was expensive and time-consuming. Theft and physical injury were also possible dangers in this situation.
Trading has become easier and less time-consuming, thanks to Demat accounts. An essential benefit is that it makes trading in securities safer and more secure, making it easier for investors. However, before registering a Demat account, it’s good to know your needs and goals.