A Demat account is a must if you want to buy and hold shares. Without a Demat account, you can only do intraday trading, Futures & Options or Commodity trading that involves only cash settlement.
However, if you are not able to sell shares from your intraday trading due to some reasons, you may be required to hold securities. Having a Demat account will be beneficial in such cases.
Additionally, a Demat account helps you store debentures, bonds and mutual fund units.
What is a Demat Account (Dematerialisation Account)
Dematerialization (Demat) is a process of converting a physical share certificate into an electronic record. The shares in electronic form can be readily bought and sold and are easy to account for. All of which are must for an online share trading.
Demat account is the place where you can store all your shares in electronic form.
In a Demat account, financial securities like shares, bonds and debentures are maintained electronically. This is done to avoid delays in transfers, eliminate loss, storage and ownership issues associated with holding physical certificates.
You can also keep your other investments like mutual funds units, government securities and ETF (exchange-traded funds) in your Demat account.
How Demat Account Works in India
Your Depository Participant (DP) is where you hold your demat account. A depository participant can be your stock broker, banks or any financial institution registered with NSDL or CDSL to act as a DP.
DP maintains your demat account and based on your instructions delivers or receives shares on your behalf. The credit, debit and the Demat account balance is maintained by your DP.
Let us understand what happens in your demat account when you buy or sell shares.
#1. Buy Securities
You can purchase shares on any stock exchange connected to the depository (NSDL / CDSL) through a stockbroker.
The purchase can be done online (through a trading account) or offline (by calling the broker).
After receiving money from you, the broker arranges payment to the clearinghouse of the stock exchange. Once they receive the funds, the dematerialized shares are credited to your broker’s clearing account.
In turn, your broker now instructs his DP to debit the clearing account and credit your demat account. By this time you should have given the instruction to your DP to receive shares. When the instructions match the demat account is credited with the shares purchased.
No separate instruction for receiving credit is required if you have given standing instruction to your DP.
The above process happens in two days and that is why we have a T+2 settlement for equity transactions.
#2. Sell Securities
When you sell securities on any stock exchange through your stockbroker an instruction is generated to your DP for debiting your demat account for the number of shares sold.
Based on your instruction the DP debits your demat account and credits the clearing account of your broker.
In turn, your broker instructs his DP to debit the clearing account and deliver the shares to the clearinghouse. The clearinghouse gives payment to your broker on receiving the shares.
The broker passes the money received to your linked bank account in lieu of the shares sold.
Demat Account Types
Demat account types are based on your residential status. Only NRIs have the option to choose a different demat account depending on whether they want their funds in India or abroad.
#1. Regular Demat Account
For common citizens, like you and me who want to hold securities can apply only for a regular demat account. Where there is no question of transferring money abroad.
#2. Basic Service Demat Account (BSDA)
The Basic Service Demat Account is for small investors. The value of holdings in a BSDA demat account is limited to rupees fifty thousand in case of equity or Rs. 1 Lakh in debt funds to qualify for zero AMC.
Brokers charge a regular AMC in case the value of holding crosses the above levels. The other services are charged.
#3. Repatriable Demat Account
Repatriable Demat Account allows funds to be transferred abroad. The account is helpful to NRIs who want to trade on stock exchanges in India but want to use funds at the country of their residence.
Repatriable Demat Account needs to be linked with an NRE bank account.
#4. Non-Repatriable Demat Account
For NRIs who do not want to remit their funds abroad can open a “Non-repatriable Demat Account”.
Non-Repatriable Demat Account needs to be linked with an NRO bank account.
Difference Between Demat Account & Trading Account
Both Demat and trading accounts are needed for transacting (buy/sell) and holding shares. Combined they are known as 2-in-1 Account (Trading + Demat). They are interconnected and stock investment is almost impossible without them.
You need to open a trading account with your broker to buy and sell a security. Whereas, the Demat account is needed to hold your shares and securities in an electronic form.
So, a Demat account is like a bank account where you keep your shares and securities.
Below is the table showing the pointwise difference between a Demat and a trading account:
|Particulars||Trading Account||Demat Account|
|Purpose||To transact (buy/sell) in securities||To store securities in electronic form|
|Account maintained with||Stock Broker||Depository Participant (DP)|
|Identification||Through trading account ID. No account number is there||You have a unique Demat account number. Also known as Beneficiary Owner ID.|
|The account gives access to||Stock market through your broker for trading||No such access allowed|
|Connects||The trading account connects both Demat and Bank account when you transact in shares.||Gets linked only to trading account at the time of account opening.|
Features & Benefits of Demat Account
#1. Quick and Smooth Security Transfers
Demat account comes with Delivery Instruction Slip (DIS) and Receipt Instruction Slip (RIS) when you sell or buy securities.
You can transfer securities fast and in a hassle-free manner using the slips. The slips contain all the relevant details required to process the transaction smoothly.
#2. Immediate Credit of the Company Benefits
In the event of the company giving you bonus shares, right share or stock-splits, your demat account gets updated with the latest holding automatically.
Benefits like dividends, refunds and interest are automatically available to eligible Demat account holders. You need not make a claim to the company.
#3. Dematerialization & Rematerialization is Possible
The Demat account allows you to convert your physical share certificates into an electronic form. This can be done by submitting the instruction and physical shares to your DP.
Likewise, if you want to re-materialize your electronic shares into physical form.
#4. Convenient to Hold and Track Securities
Demat account relieves you from the hassles of filing, storing and upkeep of physical share certificates. You can track your investments (equity and debt) easily through a single Demat account.
Additionally, you are relieved from the risk of counterfeit, damages during transfer, bad deliveries and thefts. This is because the Demat account allows you to store securities in electronic form only.
#5. Securities in Demat can be Pledged
Banks and financial institutions provide loans against the securities held in the Demat account.
The Demat account allows you to pledge the available securities for availing loans. The securities in the Demat account can also be offered for margins with your stockbrokers.
#6. Helps to Transact in Odd Lots
Odd lots are the number of shares outside the specified quantities. For example, the specified quantity can be 10, 50 or 100 shares. Two, five or seven shares are called odd lots.
Demat account helps you transact even one security.
#7. Lower Transaction Cost and Time
Demat account eliminates the additional costs like handling charges and stamp duty involved with the physical share certificate.
With a Demat account, the transaction processing time is reduced. You only need to give a standing instruction to transfer shares, the rest of the process happens online without the hassles of paperwork. The saved time can be used in making additional transactions.
#8. Freezing Demat Account
You can prevent unexpected debt or credit of securities when you are out on vacation by freezing your Demat account.
The Demat account can be frozen for a certain period and also for a specific quantity of security.
#9. Single Account for most Investments
Apart from shares, you can conveniently store your other investments in your Demat account in electronic form.
Securities that can be kept in demat account are
- Mutual funds units
- Exchange-Traded Funds (ETF’s)
- Government securities
Demat Account Charges
Four types of charges associated with a Demat account are as under
#1. Demat Account Opening Charges
Most of the Depository Participants offer you a free demat account with NIL statutory charges at the time of the account opening.
However, few of the depository participants collect an advance or deposit at the time of account opening. The amount varies from DP to DP and can be up to Rs. 5000 in the case of NRIs and corporate.
Further, the advance/deposit so collected can be fully or partly refundable or a one-time collection for a lifetime.
#2. Annual Maintenance Charges (AMC)
DPs charge an annual maintenance fee for maintaining and keeping your demat account live. There is no fixed rule and every DP has its own set of guidelines.
The AMC charges are payable monthly, quarterly or annually, which depends on how your DP collects the charges. A few of the DP collect a one-time fee that covers AMC for a life-time.
The AMC for the BSDA account for equity is as under
- NIL for the value of holding less than Rs. 50,000
- Rs. 100 per year for the value of holding from Rs. 50,000 to Rs. 2 Lakhs.
BSDA account with the value of holding above the specified level is converted into regular demat account and the AMC is charged accordingly.
#3. Custodian Fees
The custodian fees are charged by the depositories (NSDL and CDSL) for holding your securities in their safe custody.
Often companies pay the custodian fees directly to the depositories or the fees are waived off by the DPs. A very few of them charge a custodian fee.
#4. Transaction Fees
A transaction fee is charged when you sell securities and instruct your DP to debit your demat account and deliver them.
The transaction fee is charged as a percentage of the value of the transaction or as a flat fee per transaction which entirely depends on your DP.
The transaction fee can be as high as 0.05% of the value of the transaction or up to Rs. 100 per transaction.
#5. Other Charges
The other charges include a fee for providing services like
- Demat account credit charges
- Demat/ Remat
- Charges for POA & KRA
- Pledge Creation
- Failed Instruction
- Additional DIS booklet
Advantages of Opening an Online Demat Account
Opening only a demat account is helpful when you want to hold shares allotted in an IPO. Even then you need a trading account for selling those shares.
New investors should open a demat account along with the trading account because the KYC process and document requirements are almost the same.
So with a single online form and a set of documents you can open both the accounts simultaneously.
#1. Quick Account Opening
You just need to fill in the account opening form and be ready with the set of KYC documents, canceled cheque and photographs.
DP may require you to scan and upload the documents or make an in-person visit to verify documents.
#2. Paperless and Hassle-free Process
Online demat account opening is free of paperwork. The verification can be done through the Aadhar OTP.
Once the account is processed, you will get the details on your email or mobile directly.
#3. Saves time
Online demat account opening requires a PC and a good internet speed which saves time when compared to filling in the physical account opening application.
The form submission and processing is faster when compared to a physical account opening method.
When you open a demat account online, you do not have to visit a DP or your agent. The application can be made by sitting comfortably from your home.
The application can be made even on holidays.
You save on traveling costs and paying to your agent when you open a demat account online.
Our 3 Pick Best Demat & Trading Account in India
#1. 5paisa Demat Account
5paisa has one of the lowest brokerage charges of flat Rs. 10 per trade under its Platinum plan..
The Demat account opening is paperless and can be completed in three easy steps.
- Fill your personal and bank details
- Upload your documents
- E-sign your form
5paisa offers three subscription plans, namely the Optimum, Platinum, and Titanium Plans.
|Transaction||Optimum Plan||Platinum Plan||Titanium Plan|
|Stock Delivery||Rs. 20 per order||Rs. 10 per order||Free|
|Stock Intraday Trading||Rs. 20 per order||Rs. 10 per order||Rs. 10 per order|
|Stock Futures||Rs. 20 per order||Rs. 10 per order||Rs. 10 per order|
|Stock Options||Rs. 20 per order||Rs. 2 per lot||Rs. 2 per lot|
|Currency F&O Trades||Rs. 20 per order||Rs. 10 per order||Rs. 10 per order|
However, there are plan charges as under;
- Optimum Plan – No plan charges
- Platinum Plan – Rs. 499 per month
- Titanium Plan – Rs. 999 per month
5paisa Demat Account Charges
|Statutory charges at the time of account opening||Nil|
|Account Maintenance Charges (AMC)||Individual Rs. 400Non-Individual Rs. 400|
|Demat||Rs. 15 Per Certificate|
|Remat||Rs. 15 Per Certificate Or Per 100 Units/shares whichever is higher|
|Transaction (Debit)||0.025 % Or Rs. 25 whichever is higher|
- Rs. 0 account opening charges
- Online account opening
- Flat brokerage of Rs. 10 per trade
- Delivery trades are charges under Optimum and Platinum plan
- Plan charges of Rs. 499 – Platinum and Rs. 999 – Titanium plan
#2. Upstox Demat Account
Upstox (earlier RKSV Securities) offers 2-in-1 (demat + trading) account for free equity investment.
You just need to pay a flat charge of Rs. 20 per order for intraday, F&O, currencies and commodities irrespective of the trading volume. It is a huge saving compared to other full-service brokers.
You will get the fastest & best trading platform in India with Upstox that you can use on the web, mobile and desktop.
The Demat account and the trading account, both are opened simultaneously. You have a paperless, online account opening process.
Upstox Brokerage Charges
There are two trading plans; namely the Basic Plan and the Priority Plan.
|Trading Type||Brokerage Charges for |
|Brokerage Charges for Priority Plan|
|Equity Delivery||Rs. 0||Rs. 0|
|Equity Intraday||Lower of Rs. 20 per executed order or 0.05%||Lower of Rs. 30 per executed order or 0.10%|
|Equity Futures||Lower of Rs. 20 per executed order or 0.05%||Lower of Rs. 30 per executed order or 0.10%|
|Currency Futures||Lower of Rs. 20 per executed order or 0.05%||Lower of Rs. 30 per executed order or 0.10%|
|Commodity Futures||Lower of Rs. 20 per executed order or 0.05%||Lower of Rs. 30 per executed order or 0.10%|
|Equity Options||Rs. 20 per executed order||Rs. 30 per executed order|
|Currency Options||Rs. 20 per executed order||Rs. 30 per executed order|
|Commodity Options||Rs. 20 per executed order||Rs. 30 per executed order|
Upstox Demat Account Charges
|Statutory charges at the time of account opening||Nil|
|Account Maintenance Charges (AMC)||For Individual A/c – 300/- (Charged monthly @ Rs.25)For Non-Individual – 1000 For NRI – 500|
|Demat||Rs 20 per certificate plus charges of Rs. 50/- per request.|
|Remat||For every 100 shares Rs.25 part thereof, subject to maximum 5,00,000 or flat fee Rs.25 per certificate, whichever is higher.|
|Transaction (Debit)||Rs.13/- plus Rs.5.50/- (CDSL charges) per scrip.|
- Rs. 0 account opening charges
- Online account opening
- AMC – Rs. 25 per month
- Charges for physical demat statements
#3. Zerodha Demat Account
Zerodha is one of the largest discount brokers in India with over 1.5 lakh customers. Zerodha 2-in-1 account that can be opened online.
Zerodha is best for small investors because of the brokerage rate of Rs. 20 per trade.
Zerodha Brokerage Charges
|Trading Type||Brokerage Charges|
|Equity Delivery||Rs. 0|
|Equity Intraday||Lower of Rs. 20 per executed order or 0.03%|
|Equity Futures||Lower of Rs. 20 per executed order or 0.03%|
|Equity Options||Rs. 20 per executed order|
|Currency Futures and Options||Lower of Rs. 20 per executed order or 0.03%|
|Commodity F&O||Lower of Rs. 20 per executed order or 0.03%|
Zerodha Demat Account Charges
|Statutory charges at the time of account opening||Nil(Rs. 50 – PoA Charges)|
|Account Maintenance Charges (AMC)||Rs. 300 – Individual Rs. 1000 – Non-Individual|
|Demat||Rs. 150/- per certificate + Rs.100 courier charges|
|Remat||Rs. 150/- per certificate + Rs.100 courier charges + CDSL charges|
|Transaction (Debit)||On market: Rs.8+5.5 (CDSL charges) Off-market: 0.03% or Rs.25 whichever is higher|
- Online account opening
- Brokerage charges of Rs. 20 per trade
- High Demat and Remat charges
- Rs. 50 – PoA Charges
How to Open Best Demat Account in India
Documents Required to Open a Demat Account
You need to keep ready the following set of documents for opening a demat account
- KYC documents like Aadhar Card, Passport, Voter ID, driving license
- PAN Card
- A canceled cheque for bank account details
- Passport size photographs
Steps to Open Best Demat Account in India
The online demat account opening process is more or less the same with all the DPs.
The stepwise process of which is under
- Visit the website of the DP
- Click on the link to open a demat account.
- Fill in the name, phone number and email address.
- Verify yourself through the OTP received
- Provide PAN, bank and other personal details
- Upload the required documents
- E-sign the account opening form
Which demat account is best?
If you are an Indian resident then a regular demat account with all the benefits is best for you. NRIs can opt for a repatriable or non-repatriable demat account based on their fund transfer requirements.
Basic service demat account is best when you have low transaction and want to save on AMC charges.
How many demat accounts can a person have?
You can have multiple demat accounts opened in your name. There is no restriction on having more demat account.
However, you need to keep in mind the AMC charges associated with each account.
Can the demat account be opened online?
Yes, the demat account can be opened online. The online process is quick, paperless, hassle-free, convenient and cost-effective.
Is the demat account safe?
Yes, the securities held in the demat account are kept in the safe custody of the depositories.
Moreover, the securities are in electronic form and require you to provide instruction slip for any debit or credit of securities.
Is demat account free?
Most of the DPs do not charge the statutory account opening fees. However, there are AMC, transaction, custodian and other charges associated with the demat account.
Is the demat account required for mutual funds?
NO, you do not necessarily require a demat account for holding mutual fund units.
But keeping your mutual fund investments along with other securities in a demat account helps you to keep track of all the investments from a single demat account.
Is the demat account required for SIP?
No, a demat account is mainly used for keeping shares in an electronic form.
Whereas, investment in a mutual fund through a systematic investment plan (SIP) can be done directly through a bank or financial institution.
Is the demat account required for NPS?
For the National Pension Scheme (NPS) you need to have a PRAN account (permanent retirement account number).
You do not require a demat account for investing in NPS.
Can the demat account be transferred?
You have the option to transfer your demat account from one DP to another DP.
For transfers, you need to fill in the transfer request form and submit to your DP. The DP will transfer all your holdings to your new demat account with another DP as indicated in the transfer form.
Can the demat account be opened jointly?
Yes, you can open a demat account jointly. The joint demat account can have at most three account holders. The main account holder and two joint holders.
How to close a demat account?
To close a demat account you need to have a nil holding. If there are any securities, then you can transfer them to another DP.
Then you can fill the closure form. You need to provide KYC details, DP ID & client ID and the reason for the closure. The filled-in closure form can be submitted to the nearest DP branch.
Can the demat account be opened in the name of a minor?
Yes, a demat account can be opened in the name of a minor. But you need to indicate a guardian for the said demat account.
However, the demat account in the name of a minor is not allowed to trade intraday, F&O. Only delivery shares can be purchased or sold from a minor’s demat account.
Can the demat account be closed?
Yes, you can close your existing demat account after transferring all your holdings to another DP or by rematerializing all your securities.
Can an NRI open a demat account?
Yes, an NRI can open a demat account. He has two options;
Open a repatriable demat account linked to the NRE bank account. So that he can use the funds abroad.
Open a non-repatriable demat account linked to the NRO bank account. Where he cannot repatriate the funds abroad.
What is Power of Attorney (PoA) and why is it needed?
PoA is an authority given to your stockbroker to transact on your behalf. PoA is needed for seamless trading.
PoA removes the practical step of signing the delivery instruction slip every time you transact.
Can I link a Demat & Trading account?
Yes, you need to link both the account for transacting (buying/selling) of securities. In fact, both the accounts are linked by your broker when you open them. Such accounts are also known as 2-in-1 accounts.
Linking both the account simplifies investment and trading.
Can I hold other securities in the same demat account?
Yes, other securities such as debentures, bonds, mutual funds units, government securities and exchange-traded funds( ETFs) can be kept in the same demat account.
Keeping all the securities in a single demat account helps you in tracking and accounting.
Does a Demat account require a minimum balance?
No, the demat account is not like a bank account wherein you are required to maintain a minimum balance.
In fact, the demat account is opened with a zero balance.
You may not need a Demat account if you are trading intraday. But the Demat account is an important part of seamless trading and investment.
The Demat account helps you keep safe all your long term investments in various instruments like stocks, mutual funds, NCDs, bonds and ETFs. Demat account helps you track and manage in a single location all your investments.