The process of investment has seen major turns in the last couple of decades. With the arrival of online technology, things have become much more dynamic. E-commerce is gradually becoming a preferred option. The same stands for the stock market and shares. Previously, an investor would keep physical share certificates with himself and trade with them which would take up a lot of time and paperwork. With the arrival of the concept of dematerialization, things have taken a turn for the better.

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The digitization of the share market has revolutionized the way of investing in stocks. Investors and potential investors these days are keeping the prospect of opening a Demat account within their sight. If you happen to be one of them there are 5 things which you should bear in mind prior to opening a Demat account.

What Is A Demat account?

A Demat account is just like a bank account with the difference that it deals with, in electronic form, stocks instead of cash. A Demat account uses the concept of dematerialization for its operative function. Dematerialization is the process in which physical share certificates are converted into electronic form. A Demat account, accordingly, uses this technology to store all of an investor's stock under one roof: these include government securities, mutual funds, shares, bonds, etc. Just like a bank account deals with credit and debit of cash, a Demat account engages in buying and selling shares respectively.

Under the guidelines of SEBI, there are two depositories in India: National Securities Depository Limited (NSDL) and Central Depository Securities Limited (CDSL). Though NSDL is the largest and biggest Demat Depository in India, last year CDSL overtook it in the total number of accounts:

As of December 31, 2019. Data Source: Business Standard

How To Open A Demat account

After having a brief idea about the Demat account, the question which immediately follows is how to open a Demat account? Opening a Demat account is totally an unambiguous method.

Opening a Demat account is extremely simple. SOURCE: Pixabay

You merely have to follow certain simple and easy steps to know how to open a Demat account. These steps are given below:

• Opting For A Depository Participant

Choosing a Depository Participant (DP) is the first step towards opening a Demat account. A DP acts as an intermediary between you and the depository with whom you will be having your account. From stockbrokers to many online platforms, you have innumerable options to choose from to get a DP. Therefore, it will not be difficult for you to find them on the basis of your convenience and compatibility. Once you have picked a DP for yourself, they can also assist you in further queries about how to open a Demat account.

• Filling A Demat Application Form

After choosing the DP, you will be asked to fill a Demat account form. In it, you will be required to write the necessary details to make a profile by which you will be operating your Demat account.

• Submitting Verification Documents

Following the first two processes, you will be required to submit verification documents containing income proof, address proof, and identity proof. These documents would generally include your PAN card, Aadhar Card, Voter's ID, electricity bill, etc.

• In-person Verification

After having submitted the verification documents, you will be asked to make an in-person verification. This can be done in two ways: either you will be asked to be present in the DP's office or it can be done online with the help of a webcam.

• Agreement And ID Number

The final step will include signing the agreement stipulating the terms and conditions between you and the DP. Also, you will be given an identification number with which you will be operating and conducting your account transactions.

Types Of Brokerage

In India, there are basically two types of brokers: discount brokers and full-service brokers. Discount brokers offer you services in terms of carrying out your decisions and help you in acquiring equities and other trading services. Whereas, a full-service broker provides investment opportunities in mutual funds, equities, IPOs, etc. Their service also ranges from managing your profile to giving you advice to handling other technical issues that you might face with your Demat account and stock.

Types Of Charges

The question which usually follows how to open a Demat account is what types of charges does a Demat account comes with? Charges differ with different DPs and it is needless to say that you should pick the one which provides quality at a reasonable price. Nevertheless, the following are the types of charges involved with a Demat account:

• Account Opening Charges: There are some DPs who usually charge a nominal fee for opening a Demat account. However, recently there are more and more DPs who do not charge anything for opening a Demat account.
• Annual Maintenance Charge (AMC): To maintain your account, DPs charge AMC. However, with different DPs the AMC varies with some even offering the first year to be free of any AMC.

• Dematerialization Charge: For converting your shares from physical to electronic format, you have to pay dematerialization charges. The charges are also applied for reconverting them back into the physical format.
• Transaction Fee: For the buying and selling of each share, you will have to pay a transaction fee. With some DPs, the transaction fee is applied for the whole month whereas for others it is imposed on each transaction.

Benefits Of A Demat account

The most important question, perhaps even more important than how to open a Demat account is what are its benefits. Following are some of the perks which come along with opening a Demat account:

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• It can be maintained with zero balance.
• There is no fear of the damaging of the shares.
• Ease of accessibility as it can be used from a smartphone or a computer.
• You can freeze the account for a given period and thereby, stopping all immediate activities.
• Regularly updated and faster than the physical maintenance of shares.
• Stocks in a Demat account can be used to avail a loan.
• Provides the benefit of rematerialization: the process in which electronic stocks are converted back into physical stocks.

Such benefits serve as an impetus for an investor to make a Demat account. From the steps of how to open a Demat account to its benefits, the account offers only convenience and ease of access from all spheres. Now that everything is being digitized, why should your stocks remain behind? In any case, the point is if you are going to invest anyway why not do it with an advanced and more reliable option of the Demat account? If nothing else, there would be nothing lost in giving it a try at least.

[Disclaimer: The article published above promotes links of commercial interests.]