Important Things to Keep in Mind While Opening a Demat Account

A DEMAT account holds securities and shares in electronic form. It is a critical requirement for trading. You buy and hold the shares in a Demat account during online trading. This aids in easy and secure trading for the users. A Demat account holds all the investments you make in shares, exchange-traded funds (ETFs), government securities, and mutual funds. 

Now that you know the Demat account’s meaning, you must be intrigued to open a Demat account. 

Although it is easy to open a Demat account, it is important to know a few other things while doing so. Here are the five things to consider before opening a Demat account. 

Things to Keep in Mind while Opening a Demat Account

After knowing “what is a Demat account” it is essential to know certain things before you want to open one. Consider the following things while opening a Demat account:

1. Choice of broker

Although the government allows you to choose different brokers for opening a Demat account and a trading account, it is better to choose a broker that offers both services. What if your Demat broker doesn’t have a DP (Depository Participant) licence?

A broker who will carry out the process of trading must have a DP licence. After you sell your shares, you need to submit a Debit Instruction Slip (DIS).

A DIS can only be presented by a DP-licensed broker. However, if you do not present DIS on time, this may result in losses and bad delivery. 

It is necessary to have the same broker for both dematerialisation and trading. Due to this, your trading journey from beginning to end will be simple and seamless.

One of the major advantages of having the same broker is that you can give them the power of attorney for your Demat account.

Your broker will debit your account in the case of a sale and credit your account in the case of a purchase. But make sure you choose the right, trustworthy, and experienced broker.

2. Check the reliability of the DP technology platform

With the growing trend of trading, most demat brokers offer you both the services of a Demat account and a trading account in one place.

Your bank account financing, the crediting of Demat accounts, the debiting of Demat accounts, and the crediting of your bank account all happen effortlessly.

Make sure your DP platform has robust technology so that your trading process is carried out smoothly.

Normally, when you sell shares, your account gets debited the next day. And when you buy shares, the account gets credited on T+2 days. 

3. Watch out for Demat charges

You must have noticed DPs promoting free account openings rather frequently. Keep in mind that this is just one expense related to keeping your DP account active.

The annual maintenance charge (AMC), which is levied on you annually, is the next. Typically, this is based on the value of the shares held in custody.

Additionally, the DP must pay a fee to the NSDL or CDSL each time you sell shares, and that fee is also taken from your account. This happens each time the shares are debited from your Demat account. 

In addition, your DP charges a fee if you request a physical statement, a duplicate statement, or a statement of holdings and transactions to provide proof.

If your DIS is denied for technical reasons, the DP will once again assess a penalty. Add all these fees to get a complete picture of how much your Demat account will cost overall.

4. Seamless integration of banking, broking, and custody

Only if your broker is also a bank can all three major activities—banking, broking, and custody—be seamlessly integrated. 

But it’s not that significant. You are good to go if your broking and custody are flawless and if you load money via NEFT, RTGS, UPI, or an authorised payment channel. 

Remember that many brokers will charge you a small fee to utilise the payment gateway; therefore, transferring money through the free NEFT, RTGS, or UPI methods is recommended.

You have less to worry about in terms of administrative concerns the more smooth these three actions are.

5. Superior support services

One cannot solely evaluate a DP based on their usual transactions. It must also be evaluated in light of the supplementary services they offer. How long does it take to dematerialise your physical shares?

Do the corporate actions automatically credit your Demat account? How well does the DP handle problems like liens, pledges, customer complaints, etc.? These factors all work together to provide you with good service.

Bottomline

Now that you know “what is a Demat account,” start your trading journey right away. However, all these five things are important to consider before you open a Demat account.

Your trading journey will be seamless once you have your dematerialization and are trading with the same broker.

Trading security is the biggest concern; for this, see how reliable your DP technology platform is.

Moreover, don’t fall into the trap of “zero Demat account opening charges.” Also, consider the additional and hidden charges.

Make sure your broker is a bank to make your banking, brokerage, and custody easier. Finally, choose a Demat platform that offers superior support services.