A dematerialization account is similar to a regular bank account. However, the former account holds your securities, such as shares, debentures, and bonds instead of money. Before you invest in the stock market, it is mandatory to open a dematerialization account.

If you are opening a dematerialization account for the first time you may have several questions. Here is a brief guide on such accounts.

  1. What is demat account and when is it needed?

A dematerialization or demat account is an electronic account that is used to hold your investments in different types of securities. This account eliminates the need to hold these securities in a physical form. Every individual who wants to invest in the stock markets must open this account with a registered depository participant (DP).

  1. What are depositories and DPs?

Depositories are agencies that electronically hold your securities and enable various transactions. There are two Securities and Exchange Board of India (SEBI)-registered depositories. These are the Central Depository Services (India) Limited (CDSL) and National Securities Depository Limited (NSDL).

The DPs are agents between the investors and the depositories. To avail of the services of a depository, you need to open an account with a DP. You may hold all your different securities in this account.

  1. What are the benefits of a demat account?

Having a demat account online has many advantages. Here are some benefits of such an account.

  • All your securities and shares are securely held
  • Elimination of stamp duty on the physical certificates reduces the transaction costs
  • Quick and convenient settlement, which eliminates delays.
  • Less paperwork associated with transfer of physical securities.
  • No risks of theft, loss, damage, non-delivery, or fake certificates.
  • Even a single unit of the security may be bought and sold.
  1. What are the fees payable on a demat account?

Majority of the DPs do not levy any charges when you open such an account. Some DPs may charge refundable opening charges and a few may levy fixed fees to open an account. In addition, you need to pay charges, such as transaction fee and an annual maintenance fee. When you convert your physical certificates into a dematerialized form, you will have to pay conversion charges.

  1. How to open a demat account?

You may choose to open an account with any SEBI-registered DP. Most financial institutions in India provide such services. Once you choose the DP, you need to fill an application form and submit the required documents, such as Permanent Account Number (PAN) card, address proof, and identity proof. A representative will complete a physical verification, after which you would receive the account number. You may, then, use your account to transact and invest in different securities.

A dematerialization account takes around one to two weeks to open. You may open multiple accounts with the same or different DPs. There is no requirement to hold a minimum number of securities in this type of an account. You need to have a demat and trading account to start investing.