What Is Demat Account And How To Open It

One of the biggest changes that the stock market has undergone at the beginning of the 90s is a shift to screen based electronic trading from the traditional public outcry system. In the public outcry system, brokers used to call out the prices for shares in a trading rink and then settle the deal between themselves on behalf of their clients. Paper share certificates, bonds and mutual fund units were maintained and transferred between parties.

However, with electronic trading, paper versions of financial instruments were converted into electronic versions. The account used to maintain the electronic versions of these instruments was called a demat account since the paper versions were dematerialized into their electronic form.

A demat account is a repository for financial instruments held in electronic form. This means there is no need to hold on to paper versions of these securities since these online forms of instruments such as bonds, equity shares, mutual fund units can easily be transferred from the demat account by using the trading account. It is also possible to see the transactions done in the demat account and the balance in the demat account on any particular day. To put it simply, a demat account is like a bank account where you can see the transactions done and the balance on the particular date. However, a demat account doesn’t need to have any balance in it. It can be empty till the time you make any trades in the stock market.

How to open a demat account:

1. The first part is to do due diligence on the broker or depository participant. There is no requirement to open a demat account and trading account with the same company, however, you can open your demat account with any bank or broker. You need to examine the schedule of costs to see if you want to open both accounts with one company or not.
2. Once you decide where to open the demat account, you can visit the branch and fill up a form and submit your KYC documents. In the alternate, you can also fill up an account opening form online and then the customer service representatives will contact you regarding the opening of your account.
3. If you already have paper securities, then they will have to be converted into electronic securities. You will need to get them dematerialized so that they get credited into your account. If you already have an existing demat account, you can hold on to this demat account until you decide to make trades.
4. Once the account opening formalities are done, your demat account will be opened. To trade in the stock market, you will need to link it to your trading account.

Arjit Chalmela is a finance student who loves to write in his free time. He has spent considerable time researching the foreign exchange rate.