What is the Use of a Demat Account

What is the Use of a Demat Account

The world has become digitised where almost everything is available on the internet, and so are portions of a company. If you are wondering what’s the use of a Demat account and how to open a Demat account, you will find all your answers here. Before we get into the details of what a Demat account is used for, let’s first understand what a Demat account is. You can refer to our earlier articles to get in-depth information on what a Demat account is.

What is a Demat Account?

Before understanding the Demat account, you need to understand what Dematerialisation is. The conversion of physical issuance of share certificates to electronic mediums is called dematerialising. Now since these physical shares are converted in the form of electric balance, you need a place to store them safely in a dematerialised account, i.e. Demat Account.

Essentially, you keep your money in a bank account; a Demat account is used to keep your electronic shares.

How to Open a Demat Account?

Opening a free Demat account was a headache back in the day, and people refrained from opening one because of the sheer number of documents you had to produce and the verifications that could take months. But today, with digital brokers coming into the market, the process of Demat account couldn’t be more smooth.

Traditionally the procedure of opening a Demat account required these steps:

  1. Choose the stockbroker you want to open your Demat account with. They are known as depository participants (DP). You can research and find the best DP whose services and offers fit your needs perfectly. A depository participant can be a stockbroker, brokerage firm or even bank.
  2. Fill out the form to open a Demat account by either walking into the office or, if the DP has a website, navigating there to find the Demat account form and submit it. While you are at it, also try opening a trading account as it will help you sell and buy the stock of your own accord. Many DP provides a 2-in-1 deal opening both Demat and trading accounts.
  3. After the DP accepts your form, you will be asked to produce documents. Depending on The DP, they can ask you for more or fewer documents, but these are the few documents you must have.
  • Aadhaar Card
  • Pan Card
  • Bank Account (passbook/account number/ income details)
  • Voter ID or Driving licence
  • Five passport-size photos
  • Signature (E-Signature/ Scanned Signature)

The DP can ask for a few more documents, but these are essential.

  1. Then The verification Process will begin, known as KYC of the Demat account. KYC stands for “know your customer”, and all the documents you provide will be scanned, checked, and verified. After the document verification, you will be called for in-person verification. You might be asked to visit the office of the DP, or you can do it online using a smartphone or laptop.
  2. After all the verification, you will sign the agreement and enter into a contract with the Depository Participant.
  3. You will be given a BO ID and a unique Beneficial Owner Identification Number associated with your Demat Account, and you will be able to access the Demat account using this BO ID.

And that’s how you will be able to open a Demat account. The process can differ slightly for different Depository Participants, but they are more or less the same.

The discounted broker in the market today has made opening a Demat account extremely straightforward. All the documents can be produced using Digilocker, and the verification can be done with a smartphone within minutes; you will get your Demat account the next day and the trading account the day after.

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