A Report on "Oppening an Demat account" (HSC PROJECT)
DEMAT ACCOUNT OPENING
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INTRODUCTION
Demat Account is an account that is used to hold shares and
securities in electronic format. The full form of Demat account is a
dematerialised account. The purpose of opening a Demat account is to hold shares
that have been bought or dematerialised (converted from physical to electronic
shares), thus making share trading easy for the users during online trading.
In India, Free
Demat account service is provided by depositories such as NSDL and CDSL
through intermediaries / Depository Participant / Stock Broker such as Angel
Broking. The charges of Demat account vary as per the volume held in the
account, type subscribed, and the terms and conditions laid by the depository
and the stock broker.
Aims and objectives
of a Demat Account
There are multiple reasons why the Demat
account opening has been promoted aggressively since its
inception. The rationale behind it is mentioned as under:
- The
fact that Demat accounts allow the investor to hold shares in the
electronic form eliminates the risk of misplacement, damage, theft, and
forgery, as was the case with physical shares. Hence, the objective of a
Demat account is to make handling of shares safer than before.
- A
Demat account also aims to make operations simpler. Transfer of shares is
now easier than ever, and it can be completed within a few hours as
compared to months, previously. Moreover, the procedure to change address
has been made seamless and less time-consuming with the advent of Demat
accounts.
- Convenience
is another area which Demat accounts look to improve. It has done away
with, cumbersome processes like buying and pasting share market stamps,
and restrictions on selling shares in odd lots. Thus making the process
simple and convenient. Additionally, the electronic process means that
transactions of shares involve much less paperwork, thus making it a
cost-effective activity.
Needs &
Importance
Demat account opening offers a wide range
of facilities for the investor. Let us look at a few of them below:
- Transfer
of Investments: A demat account aids the transfer of shares of an
investor. By filling in a Delivery Instruction Slip ( DIS ) with all the
relevant investor specifics, it enables an effortless transfer of shares.
However, it is not only limited to shares, but various investments or
security holding can also be transferred through a such an account.
- Dematerialisation
and Rematerialisation: A demat account assists the conversion of securities
into different formats easily. By instructing your DP – depository
participant for dematerialisation, to carry out the formalities to convert
the physical share certificate into an electronic form. On the other hand,
the investor can get their electronic security holding converted back to
the physical form via the process of Rematerialization, wherein an RRF –
Remat Request form is to be filled in by the DP.
- Loan
Facility: the securities held in the account can provide the investor his
exact and detailed holding to enable him to apply for a loan from a bank
or financial institution. The securities can be provided as collateral
towards the loan.
- Corporate
Actions: Such accounts assist the investor in tracking and maintaining his
securities. This is specifically required to monitor split of any equity
shares, bonus issues or any other action taken by the companies for their
shareholders. These are directly updated in the account.
- Freezing
your demat account: Investors are provided the option to freeze your
account for a specific period or as per requirement. At times this is
undertaken to prevent unexpected activities in the account. However, to
avail this facility a particular amount of shares should be present in the
investor's account.
- Speed
E- facility: NSDL has provided an electronic facility for their investors
to complete a transaction through the submission of an e-slip which is
then sent to their DP.
Presentation
What is a Demat
Account?
Initially, stocks and shares used to be
exchanged via physical receipts called certificates. However, this resulted in
lengthy paperwork and took up a lot of time. To counter this and to take
advantage of an electronic trading platform which was gaining traction in West
and the Asian Markets, the process of dematerialisation (demat) of shares was
initiated in 1996. Physical share certificates were converted into electronic
form securities of equivalent number and price and were credited to the
investor’s demat account. Thus, the advent of trading commenced this way.
In a more simplistic approach, demat accounts
allow the investor to buy and sell as well as transact not only shares and
stocks but other products conveniently without the need of any sort of
paperwork.
Open your Demat account by registering with a Stock
Broker from Angel Broking
Investing in physical shares is a lot of
paperwork together with a lengthy procedure and a high risk of receiving fake
shares. To keep this entire process simple and streamlined, an investor should
choose to open a demat account.
Online trading, enables the shares and
securities to be held in such an account in dematerialised or electronic
format. Dematerialisation is the process of converting the physical share
certificates to an electronic form to increase its accessibility
As per SEBI guidelines, such accounts is
mandatory for every shareholder who intends to trade in stocks and shares and
other products.
Hence, to settle trades electronically,
an investor requires a specific demat account number.
It is a similar concept to that of a
bank account; wherein there is a record of the debt and credit of the balances
maintained in a bank passbook. Likewise, when a purchase or sale of a share is
undertaken, it will be either credited or debited to or from the account
respectively. Thus, holding a such an account allows the investor to buy and
sell shares or any other product and hold them safe and sound.
A demat account can be used to retain
several investments like shares, stocks, index and gold, bonds, Government
securities, initial public offerings(IPOs), Exchange traded funds (ETFs),
non-convertible debentures(NCDs), mutual funds, etc. which are traded on the
exchanges. You can open a demat account without owning any shares or products
together with maintaining a zero balance account.
HOW TO OPEN
DEMAT ACCOUNT
Demat Account
Opening is an easy process with these simple steps :
Step 1: choose a Depository
Participant (DP) to open the account with. A beneficial owner (BO ) account is
opened with the depository.
Step 2: an account opening
form is required to be filled in with all the investor details, together with
the supporting documentation copies of proof of address, proof of identity,
proof of income etc. A PAN card is mandatory to open the account. All
documentation should be presented in original as well for verification.
Step 3: you will be
provided with a copy of the rules and regulations as well as the necessary
charges to be paid to your DP. An in-person verification will be conducted by a
representative of the DP to confirm all the details and documentation provided
by the investor.
Step 4 – Once approved and
documentation is submitted, your Demat account is opened and operational.
An investor
can open the account online in minutes through any bank or financial
institution. There are various options available to open the account online;
DOCUMENTS REQUIRED: OPENING A DEMAT ACCOUNT
A Demat account is similar
to any other bank account, except that it is used to hold securities and other
financial instruments.
As the procedure to open demat account online is almost the same across
different firms and institutions,
the list of mandatory
documents required to register the account is also the same. The different
types of documents required for opening a Demat account are:
1.
Proof of Identity (POI) (Eg.: Driving license)
2.
Proof of Address (POA) (Eg.: Passport)
3.
Proof of Income (For trading in derivatives such as
F&O) (Eg.: Copy of ITR Acknowledgement)
4.
Proof of Bank Account (Eg.: Cancelled cheque)
5.
PAN Card
6.
1 to 3 passport size photographs
Benefits of a Demat account
These are some of the advantages of a
Demat account:
1.
Lower risks
2.
Easy holding
3.
Odd lots
4.
Reduced costs
5.
Reduced time
Details of these advantages are given
below:
1.
Lower risks:
Physical securities are risky due to
thefts, losses, or damages. In addition, bad deliveries or fake securities pose
further risks. These risks are completely eliminated with the opening of a
Demat account, which provides holders with the option of holding all their investments
in electronic form
2.
Easy holding:
Maintaining physical certificates is a
tedious job. Moreover, keeping track of their performance is an added
responsibility. Demat account holders can make it more convenient to hold and
track all their investments through a single account.
3.
Odd lots:
With physical certificates, buying and
selling were possible only in the specified quantities. The convenience of
dealing with odd lots or single security was also not available. Demat accounts
eliminate this issue.
4.
Reduced costs:
Physical certificates involved several
additional costs, such as stamp duty, handling charges, and other such
expenses. These extra expenses are completely eliminated with Demat accounts.
5.
Reduced time:
Due to the elimination of paperwork, the
time required in completing a transaction gets reduced. The reduced time
requirement enables the account holder to make more purchases and sales of
security holdings in a shorter time and with greater efficiency.
Demat accounts are simple, fuss-free and
extremely lucrative. In today’s day and age, they are a must for financial
planning.
Why do you need a Demat account?
The conversion of physical securities to
electronic form is optional because an investor is allowed to hold securities
either in physical or electronic format. However, monitoring of physical
certificates is more difficult compared to its dematerialised counterparts.
Additionally, it is difficult to buy or
sell securities in physical form. The number of agents dealing in physical
shares, as well as the number of buyers willing to purchase physical shares, is
much less as compared to the individuals transacting in dematerialised
securities.
Features of Demat account
Easy share transfers:
Investors can transfer their holdings through
a delivery instruction slip (DIS) or receipt instruction slip (RIS) for buying
or selling shares. These slips allow users to provide all the details that are
required for executing a transaction smoothly.
Faster dematerialisation &
rematerialisation of securities:
Demat account holders can provide
instructions to their depository participant (DP) to convert physical
certificates into electronic form. Alternatively, electronic securities can
also be reconverted to physical form, if required.
Pledging facility to avail loan:
Several lenders provide loans against
securities that are held in the Demat account of the borrowers. These holdings
are used as collateral to avail loans by the account holders.
Freezing Demat accounts:
Demat account holders can freeze their
accounts for a certain period, if required. This option can be beneficial if
one wants to prevent unexpected debit or credit into one’s Demat
account. The freezing option is also available for a specific
quantity of securities held in the account.
Multiple accessing options:
Demat accounts are operated
electronically, which means these can be accessed using multiple modes. These
accounts can be accessed through the Internet using a computer, smartphone, or
other smart devices.
SPEED E-Facility:
The National Securities Depository
Limited (NSDL) allows users to send instruction slips electronically instead of
physically submitting the slip to the DP. This makes the procedure more
convenient and less time-consuming.
Corporate benefits & actions:
If the companies offer dividends,
refunds, or interest to their investors, these benefits are automatically
available to the Demat account holders. In addition, corporate actions like
bonus issues, right shares, or stock split are automatically updated in the
Demat account of all the shareholders.
Conclusion
The conclusion of Demat Account and the above
points show just how useful a demat account is. You can open a demat account if
you wish to trade safely and in a structured manner. Demat accounts benefit
every entity in the value chain, including the investor, the stock-issuing
company, and the broker. Choose a good brokerage house like Kotak Securities
tyour demat account if you have not done so yet.
Reference
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