Stock market is one of the most sough after platforms for investment and as a result it has been attracting investors and traders who step into this world of stock for extracting profits. Stocks and derivatives which are traded on the stock exchanges are widely preferred by investors for investing. There was a time when shares were issued in the form of paper certificates, and the investor would need to preserve the certificate and at the time of sell, transfer the same to the new buyer. However, there were many issues related to the storage of certificates. There were various loopholes in the system as well which gave rise to the various issues of fraud and forging. Thus, the need of a new process arose which gave rise to dematerialization.
Dematerialization of securities began with the establishment of the National Stock Exchange. The securities were converted into electronic form and stored in a Demat account. The entire process required no paper certificates. It made the stock market trading easier and less cumbersome. Various loopholes were eliminated.
Considering the benefits of Demat account, SEBI has made it mandatory for every investor and trader to hold a valid Demat account before they can step into the stock market. The National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are two of the depositories in India. However, you cannot approach a depository directly for opening a Demat account. The same is done through Depository Participants, who act as an intermediary between the account holder and Depository. Opening a Demat account is not a complicated process and can be done easily.
Let us take a look at the process of opening a Demat account in India.
Let us now discuss about all the steps involved in opening a Demat account in India.
1. Choose a Depository Participant (DP)
Choosing a Depository Participant is the first and foremost step required for opening a Demat account. Your DP will act as the intermediary between you and the depository which will be either NSDL or CDSL depending on your Depository Participant. There can be various charges on your Demat account like Account Opening charges, Annual Maintenance Charges etc. and usually these are the most prominent factors considered by investors when choosing a Depository Participant.
DEMAT accounts have eliminated the hectic paperwork which was initially required for trading in the markets. The DEMAT accounts are hosted on the two major depositories of India, namely NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
2. Fill the Demat account form
Once you finalize your depository participant, you will need to fill the account opening form. Your depository participant will provide you with the form and take all your basic details in the same. Once you complete and submit the form, you can proceed to the next step.
3. Submission of KYC and other documents
After submission of your duly filled form, you need to submit your KYC documents including your photo ID and address proof. These can include your driving license, voter ID, Passport, electricity bill etc. Submitting your Aadhaar and PAN card copies has been made mandatory by the regulatory authorities. Along with the KYC you also need to submit a cancelled cheque of your bank account for verification purposes and your photographs. It is better to have copies of all these documents handy before applying for a Demat account to make the process faster.
4. Verification Process
After submission of the form and all the requisite documents, your depository participant will ask you to go for a verification process. Usually In-Person verifications (IPV) are carried out by the DP, where a representative of your DP will visit you and verify all your details. This helps in verifying the authenticity of all the submitted documents as well. You can also visit the office of your DP with all original documents for verification. However, after the pandemic, various DPs have switched to electronic IPV using smartphones and Web cameras.
5. Signing of Agreements
Once your verification is completed successfully, you will need to sign an agreement with your DP which will include all the rules, regulations and rights which are associated with holding a Demat account. It is recommended to read all of them carefully and clear all your doubts before signing. Once you sign and submit the same, it will be signed by an authorized person from the DP as well and a copy will be handed over to you.
6. Allocation of Beneficiary ID (Account Number)
Once you sign in the agreement with your DP, they will proceed further to process your Demat account opening application. Upon approval of your application, you will be allotted a beneficiary ID which will be your Demat account number. You can now use your Demat account to hold shares in custody. You now need a trading account with a broker to start trading and investing in the markets.
Conclusion
The introduction of dematerialization and Demat accounts may have simplified the process of investing in the markets but one should remember that investing in the markets require experience, knowledge and research. You can take the services of a certified investment advisor who will provide you with research-based recommendations for all your trading needs. It is recommended to get your risk profile evaluated before you proceed with any sort of investment.
