Prior to 1991, all investments, trades, and security purchases were carried out in physical stock markets, with share certificates being pieces of paper, which upon misplacing, were almost impossible to get back. As a result of this, the market was riddled with failed trades, time-related trading issues, and fraud that ran rampant.
All of this, however, came to an end when the Indian Government of 1991 decided to undertake the process of Dematerialising all share certificates. Dematerialization refers to the process by which a client can get physical investment certificates/securities (shares, mutual funds, ETFs, bonds, debentures, etc.) converted into electronic balances.
The introduction of Demat accounts in 1996 was a historic moment and a turning point for the Indian stock market as it made share trading quick and easy.
A Demat account is to your shares what a bank account is to your money. A general bank account cannot be used for holding, selling, or buying shares. So, here comes the role of these Demat accounts which act as a third-party broker for the maintenance of a company's or an individual's shares.
There are three types of Demat accounts in India:
Benefits of Demat account
With a Demat account, you can trade and invest in the stock market online, without any hassle. Additionally, it also proves to be a safe, convenient and efficient way of holding one's shares because of the following few reasons:-
- This eliminates the threat of theft, forgery, fake certificates, etc.
- Makes transactions easy by eliminating paperwork.
- It reduces the cost involved to buy and sell shares.
- Low risk of delivery of shares.
How Can I create a Demat Account?
Opening a Demat account has a fairly straightforward process. On average, it takes around 7 to 14 days to get an account opened and activated. Here’s a step-by-step guide.
- Identify a Depository Participant(DP) with whom you want to create Demat accounts. Zerodha, Upstox, and Paytm Money are some of the leading brokers in India.
- You need to fill out the Demat account opening form.
- Submit the form along with the KYC documents required. Keep a PAN card, AADHAR card, voter’s ID, driving license, and a passport-sized photograph handy.
- Your DP may require an in-person verification, wherein a representative of the DP may call you to verify the details you’ve submitted in the documents.
- Once the verification process is complete, the DP activates your DEMAT account.
Do I need a Demat account?
If you want to trade or invest in the stock market, you need to have a Demat account. Without a Demat account, you can't buy or sell the securities. However, there are charges associated with opening and maintaining a Demat account so open one if you need it.
Demat account has simplified the process of buying and selling shares in the stock market. The Demat account can be opened online as well which had made it easy to have one.
If you already have a Demat account, chances are that you are investing in the stock market. We at Captwist provide a platform to simplify investment research and stock discovery.
Are Demat and trading accounts the same?
No, because a Demat account is created for the purpose of holding your financial assets in a dematerialized form, while a trading account helps you buy and sell shares and other commodities.
Can a person hold multiple Demat accounts?
Yes, a person is eligible to hold multiple Demat accounts but with different Depository Participants.
Can one also operate a Demat account in the name of a minor?
Yes, one can also open a Demat account in the name of a minor provided it is operated by a parent or a guardian till the child comes of age.