What is Demat Account?
A Demat account is a digital account that is used to securely keep your securities, shares, mutual funds, bonds etc. Similar to a bank account which keeps your money safe and secure, Demat account is an account that keeps your securities, shares, mutual funds, bonds etc secured.
A Demat account is compulsory to open a trading and investment account in India. Demat account was introduced in 1996 that revolutionised the way shares and securities were held.
Why were Demat accounts introduced? Background and History
Before Demat account was introduced, shares and securities were handled in physical format, Imagine you just bought 100 Reliance shares and you get 100 share certificates at home, literally in physical format.
This was very risky for the following reasons
– It was very easy to print duplicate shares
– Share certificates could be easily stolen from your house or office
– One could damage or lose a physical certificate leading to financial loss
– Managing physical papers certificates required so much manpower.
To tackle numerous such issues, Demat account was introduced in 1996 and all physical forms of securities were converted into digital format.
Where can you open Demat accounts?
Opening Demat account these days is fairly simple and online. A Demat account is opened by 2 depository participants in India CDSL – Central Depository Services (India) Limited and NSDL National Securities Depository Limited
Stockbrokers act as mediators through which you can open a demat account in either of the depositories. These Stockbrokers are often known as a depository participant.
Demat account opening is free with most brokers, however, some might charge a nominal account opening fee.
You can consider the modern and ultra-tech savvy new generation discount stockbrokers like Samco, or Zerodha.
Demat account charges
Account opening charges: Demat account is generally free however some stockbrokers might charge a nominal fee for opening an account
AMC: Demat account might attract a nominal annual maintenance fee that could range from 200 to 1000 a year.
Transaction charges: when you buy shares or sell shared that are lying in your demat account, the depository may charge a fixed fee per transaction to enable smooth transactions.
Demat account is nominal expenses involved in investing and should not bother investors like brokerage cost.