Are you worrying of low-interest rates on FDs (Fixed Deposits)? Are you seeking alternative forms of investments? If yes, you may think about investing in market-linked instruments like shares, mutual funds, ETFs, bonds, etc.
Investing in stock markets is fairly decent. You just need a Demat and Trading account, as per SEBI guidelines, for online trading in India. Now, you may wonder what is Demat account? A Demat account is nothing but a digital repository of your stock market securities. It holds your physical security certificates in dematerialized form.
The Demat account opening procedure is a paperless and hassle-free process. You may open a Demat account with a broker/Depository Participant who is a registered member of NDSL or CDSL. Besides, you need to be aware of all terms and conditions before opening a Demat account.
Demat account opening procedure
1. Eligibility criteria
To open a Demat account, you must fulfill the following basic criteria:-
- Be an Indian citizen resident in India
- Be aged 18+
- Possess a valid PAN card and address proof (e.g., Aadhar card, election ID, passport, driving permit, utility bills of last 3 months, etc.)
2. Requisite documents
You need to upload scanned copies of the following documents while submitting your Demat account application online. They are:-
- Pan card: You are mandated to submit your PAN card copy for opening a Demat account. A PAN card is used for tracking your holdings and matching your annual tax filings.
- Photograph: Your passport-sized recent photo.
- Signature on white paper: Your sign on a blank white paper should match your sign on the PAN card. Any mismatch herein may lead to the rejection of your Demat account application.
- Address Proof: You can upload soft copies of any of the government-authorized valid address proofs mentioned earlier.
- Bank details: Your bank account details need to be furnished to link your Demat and trading accounts with your bank account. Moreover, if you hold securities of issuers who pay interest on debentures/bonds or declare dividends, then such income will be directly credited to your bank account. You may submit a canceled cheque with a visible IFSC code and account number.
- Income proof: This is a mandatory document if you wish to trade in derivatives. You may upload copies of the 6-month bank statement, 3-month salary slips, latest Income Tax Returns, etc.
Once you keep all the necessary soft copies ready, the entire online Demat account opening procedure gets completed within 10 – 15 minutes. You need to fill out the requisite forms, upload documents, and affix an e-signature.
Other terms and conditions
1. Transaction charges
Brokers charge some fees on your Demat and Trading accounts. These charges vary from broker to broker and are based on the chosen subscription plan as well. Hence, you must be mindful of the various transaction charges levied by your broker and the subscription plans offered.
The prime fee associated with a Demat account is the Annual Maintenance Charges(AMC). Dematerialization or rematerialization of your securities will also attract service charges.
The brokerage fees may differ for intraday and delivery trades. It may be higher for derivative trades. Apart from brokerage fees, other transaction costs you have to incur are turnover charges, clearing member charges, GST, STT, SEBI charges, and stamp duty.
2. Margin requirements
You have to pay an upfront margin amount for availing of the MTF (Margin Trading Facility). The MTF interest rates, too, differ from broker to broker. SEBI has currently hiked the upfront margin requirements under its peak margin system.
3. General terms
In case of changes in your contact details, you should notify your broker immediately. In the event of your death, the Demat account will be transferred to your appointed nominee. All transactions will be considered authorized by you unless specified otherwise.
4. Fees and Charges
It is always recommended to open online Demat and Trading accounts with a reputed service provider, especially if you are new to investing. The risk of a brokerage firm suddenly shutting shop will be significantly lowered if you choose a broker who enjoys significant brand equity in the market.
You can opt for a plan that is most suited to your investment requirements. If you are a beginner with low trading volumes, opt for the freedom pack which allows you to open online demat and trading accounts for free. Moreover, there is an AMC (Annual Maintenance Charges) waiver on Demat Account for the first year with the Beginner pack. The Professional pack is for experienced traders and those who wish to opt for MTF (Margin Trade Financing).
The Demat account opening procedure is paperless and trouble-free. You have to incur no fees to open and close Demat accounts. Once all the verification process is done, your Demat and trading accounts are ready for online trading in India. However, it is suggested that you read the terms and conditions well before opening a Demat account.