What is a Demat account and how can you open one?

by Manshu on December 3, 2010

in Investments

What is a Demat Account?

I got an email last week from someone asking about opening a demat account, and in the SBI and IDFC thread you might have noticed that there are several people who don’t have demat accounts, but will have to open one soon because nowadays you need one even to invest in these bond issues.

Let’s start with what a Demat account is, and then we can move on to the several options currently available in India.

My grandpa used to have a black briefcase where he stored all his physical share certificates.

Eventually he dematerialized all his shares and moved them to an electronic briefcase, which is how he described his Demat account, and I think this is quite apt to understand the concept.

A Demat account is like a brief case where you store your shares and bonds electronically.

In India there are two Depositories – NSDL and CSDL – and you can think of these depositories as banks that hold your shares and bonds in electronic form.

A regular investor can’t deal with a depository directly, and you have to deal with their agents which are called Depository Participants (DPs).

Demat Account in India

Demat Account in India

There are hundreds of DPs in India, and you can open a demat account with one that suits you in terms of price and convenience. Normally, people open a Demat and a trading account with the same institution as it makes transactions cheaper, and is more convenient to get started as well.

So you could have a trading account and a DP account with SBI or ICICI Direct. It is in fact better to have trading and DP account with the same organization because in those cases you are waived off the DP transaction fees.

Effectively, you are using an agent in the form of a depository participant to avail the services of a depository which are storing your shares and bonds electronically.

There are hundreds of DPs in India, and NSDL provides a very comprehensive list of DPs along with their fees here and here (this data might not be up to date though).

Partial List of Depository Participants in India

If you clicked through the above links to the entire list of DPs then you’ll notice that there are a large number of DPs in India, so for this post I’m trying to create a list which has got some of the better known DP names with only their annual maintenance charges covered.

There are several other charges, but including all of them here will make comparison difficult. I have included a link to the source in this table so you can go check the details there. Since these prices are relatively low – you should think about convenience also, and see if your bank offers demat services, and if you can open one there.

Name Annual Maintenance Charge Detailed Charges
SBI Rs. 400

Rs. 350 for customers receiving statements by e-mail

ICICI Bank Rs. 500

Rs. 450 for customers receiving statements by e-mail

HDFC Bank Rs. 750 for less than 10 transactions

Rs. 500 for 11 – 25 transactions

Rs. 300 for greater than 25 transactions

Citibank Rs. 250 Link
HSBC Rs. 750 Link
Sharekhan Rs. 75 per quarter (300 annually)

Deposit of Rs. 500

Axis Bank Rs. 500 p.a. for customers authorizing Bank to debit DP charges from bank account maintained with Axis Bank, and 2,500 for others. Link
Karur Vysya Bank Rs. 250 per annum Link
Sharekhan Rs. 300 under two plans, and Rs. 500 under another Link
Bank of Baroda Rs. 350 per annum Link

How to open a Demat account?

Once you decide where you want to open your Demat account – contact their representatives, and they will get you started.

You will need the following documentation in order to open a Demat account, so keep this handy while contacting the DP.

Proof of Identity: This includes PAN card, driver’s license, passport, voter card etc.

Proof of Address: This includes the above documents and bank passbooks, identity cards issued by Centre or State governments etc.

Passport size photo

Pan card copy

You will need the following details while opening the demat account:

  • Name of account holder
  • Mailing address
  • Bank account details
  • Guardian details for minors
  • Nomination declarations
  • Standing instructions

When you contact the DP – their agent will let you know if they need any specific documentation, or if you need answers to any other specific questions.

It used to be that only equity investors cared about having a demat account, but with a lot of bond issues coming out in only demat form – I think more and more investors will need to open a demat account, and if you don’t already have one, then do think about spending this four or five hundred bucks per year to take advantage of electronic stock and bond holding.

This post should get you started on what a Demat account is, how and where you can open one, as well as the documents required to open it. Please leave a comment if you have any questions or other feedback.

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