The shares that you buy and sell on a stock exchange (BSE or NSE), are stored in a demat account. The shares that are stored in your demat account are dematerialized (stored in the electronic format) and not as physical shares.
When you buy shares, your broker credits your demat account with shares. These shares are reflected in your statement of holdings (You can see details of the shares you have bought in your account).
When you sell the shares in your demat account your account is debited (Shares are debited/move out of your demat account) and money is paid to you for the shares you sell).
You need to submit a DIS (Delivery Instruction Slip), to your broker, where you fill in the details of the shares you sell. There are 2 depositories in India. They are the National Securities Depositories Limited (NSDL) and the Central Depositories Services Limited.(CDSL).
Physical share certificates can be lost, forged, stolen or destroyed in a fire. Dematerialized shares face no such problems.
Shares are stored in an electronic format. There is no paperwork needed. This saves on cost and increases the speed of transactions.
Shares arising from splits and mergers, are easily credited to your demat account. Dividends credited to bank account.
This is an electronic account. You can access and operate your account anywhere. You can buy and sell shares at great speed.
A demat account can be opened with a depository participant, which may be a bank or a stock broker who has a license to do so. You must have a PAN card to open a demat account as it is very important for your KYC (Know Your Client), norms.
You also require an identity proof (Voters card or your PAN card itself) and an address proof (Passport or a Drivers license).You have to sign across the copies of the passport and the PAN card and submit them to your depository participant, as part of your know your client (KYC) norms.
Demat account opening fees: This covers the cost of the agreement with the depository participant.
Annual maintenance fees: These fees are charged in advance mainly for the maintenance of the account and the services rendered
Custodian fees: This is mainly charged for the safe keeping of shares in the demat account and is charged based on the number of shares held in the account.
Brokerage fees: Whenever a share is bought or sold, certain transaction or brokerage fees are charged.
Dematerialization fees: In order to convert physical shares to the dematerialized form, certain nominal amounts are charged.
You can only store shares in a demat account. In order to buy and sell shares you require a trading account.
You can also opt for the 3-in-1 account which is:
Your bank account + Demat account + Trading accountSimple:
You buy shares through your trading account
Money is debited from your savings bank account and shares are automatically credited to your demat account.
You sell shares through your trading account
Money is credited to your savings bank account and shares are automatically debited from your demat account.
You can open a basic services demat account if you are a first time investor in the stock market. You can also open a basic services demat account, if you already have a demat account and you are the sole (only), holder of this account.
You can have only a single basic services demat account.
If you are a small investor in the stock markets with holdings less than INR 50,000 then it would be wise to opt for a basic services demat account also called a no-frills demat account. There are no annual maintenance charges (Maintenance charges are nil), if the holdings in your demat account are less than INR 50,000.
If the value of the shares in your demat account (value of your holdings) are between INR 50,000 - INR 2,00,000, then you will have to pay an annual maintenance fee of INR 100. If the value of the shares in your account exceeds INR 2 Lakhs, then you will have to pay an annual maintenance fee, which is the same as that of any normal demat account. You have the option to convert your demat account to a basic services demat account, if the value of your shares (holdings) slips below INR 2 Lakhs.
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