What is Demat account

Demat Account holds the shares, bonds, mutual fund units, Exchange Traded Funds (ETFs), etc. in a digital format. It replaces the physical certificates with their digital equivalent for easy storage and transfer. Imagine what it would be like to manage dozens of paper certificates of all the shares and mutual funds you hold.Before beginning the process of investing it is important for an investor to understand What is Demat account and how it functions, so they will be able to use it efficiently for generating profits. An investor can open a Demat account without possessing any shares and can maintain a zero balance in their account.

How to use a Demat account?

An individual can open their Demat account by registering with an investment broker or a sub-broker. Access to a Demat account requires an active internet connection and a transaction password that is provided after successful opening of a Demat account. The first step in opening a Demat account involves selecting a depository participant who acts as an agent to the depository. It will be followed by filling of the account opening form and submission of identity proof, address proof, PAN card and a passport size photograph. A detailed description of all the acceptable documents can be found on the official website of the financial institution. Once an investor has agreed to the terms of the agreement and charges, an in-person verification is initiated. After the processing of the application is done, post verification, a client ID or an account number is provided. It can be used by an investor to access their Demat account online. An investor can use this account for buying and selling shares, stocks and derivatives and use it as a storehouse for the stock portfolio. With a Demat account, an investor will also need a trading account and a stockbroker for carrying out the purchase of sales of shares. Trading account typically reflects the history of buying and selling in a specific account. It is the duty of the broker to transfer the shares to a Demat account of investor after the amount for purchase is paid before the pay-in date. It is compulsory for an investor to have a Demat account in order to purchase shares as trading equity involves delivery of shares.

Why do you need a demat account?

There are two reasons. Firstly, a demat account helps you trade and invest in a simple and seamless manner. You no longer need to get physical certificates to prove that you own the shares. It eliminates the legwork and paperwork one had to do earlier to carry out every single trade.

Secondly, you are not allowed to hold more than 500 physical shares at any given point. This is why opening a demat account becomes important. It allows you to trade without any restriction.

Documents required to open a Trading & Demat Account Online.You need to have a soft copy of the following documents while opening an account online:

Identity Proof (PAN Card Mandatory)Address Proof (Aadhar, Voter ID, Passport, etc)Passport Size PhotoIncome Proof (Latest six month’s bank statement, Latest ITR copy, Three month’s salary slip)Scanned copy of the signature