What is Demat Account and How does it Work
Today in this article we will learn What is Demat Account How to open Demat account and How does Demat Account work.
Are you a newbie in the stock market?
Then read the Stock Market Basics Knowledge for Beginners before going to the Demat Account tutorial. If you want to know What is Demat Account how to get Demat account and How does it Work, stay on its post. In this, we will cover everything related to the Demat Account.
So, let’s start what is Demat Account what is the use of it and how to make Demat Account……
What is Demat Account
Demat Account is the account through which the purchase is done in the Share Market. It also works like a bank account, in which different securities are the trade.
When you open Demat Account, another account is opened with this, which is called Trading Account. When you buy shares from the stock market, then it is kept in Demat Account and while the trading account is used to sell the shares.
Talking about Fees, if you get Demat Account, there are very little fees and many companies which open Demat Account and trading account at no charge.
How does Demat Account work
Without a Demat Account, you can not trade in the stock market, Demat Account acts as a bank account for your shares, debentures, government bonds, and mutual funds.
For trading in stock market, you need a trading account, in which you get a trading id, which allows you to deal with any other holder. When you buy shares, you get the trading ID and when the shares come in your Demat Account, the money is deducted from the bank account linked to your Demat Account. On the contrary, when you sell shares, money comes to your bank account and shares are deducted from Demat Account.
It is very easy and safe due to being fully electronic. By which you can trade the shares or stocks in just a few minutes and at a very low cost.
Advantages of Demat Account
- It makes the procedure more convenient and fast.
- Lower risk of thefts, loss, or damage.
- Demat shares cannot be stolen.
- There is no problem with signature.
- Due to the Demat accounts, the possibility of cheating also ends in the purchase and sale of share.
- In this, you can also buy and sell one stock.
How to open Demat account in India
To create Demat account, there are two organizations in India.
- National Securities Depository Limited (NSDL)
- Central Depository Services Limited (CDSL)
Stocks are organized by them with the help of various Depository Participants. The depository has security like Share, Debenture, Bond, Mutual Fund Unit etc. These Depositories have more than 500 agents called Depository Participants (DP). It is not necessary that a DP is a bank. You can open Demat Account with other financial organizations (Reliance Money, Share Khan, India Infoline, etc.).
When you open Demat account fill up the nomination form so that after the death of the Demat account holder the nominee will be entitled to receive all securities.
Documents required for Demat Account
- Pan Card
- Aadhaar Card
- Voter identity card
- driver Licence
- Cancelled Check
Needs and importance of Demat account
According to the guidelines of SEBI (Securities and Exchange Board of India), you can not buy or sell shares without a Demat Account. Therefore, if you want to buy or sell shares from the stock market then you must have a Demat Account.
Charges in Demat Account
- Account Opening Fees – Some companies like ICICI, HDFC, UTI, etc do not take fees to open Demat Account. While some (SBI etc) charge for it. While some companies also keep it refundable (return to account closure).
- Annual Maintenance Fees – Typically, the company takes this fee at the beginning of the year is also called the Folio Maintenance Charge.
- Custodian Fees – The company can take it every month or even once. This fee depends on the number of shares.
- Transaction Fees – If the Depository Participants can charge it on every transaction or charge on the amount of trading.
- Brokerage Fees – When you buy or sell shares, you have to pay Broker Fees whether you are Profit or Loss.
If you think that your broker is charging more than you, you can close your account from him or Create a new Demat account or you have transferred somewhere where your broker is unable to offer the facility. Even then you can do this.
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