Stock markets are an investment choice of millions. But to carry out any trade in the stock markets, even commodity, and bond markets, it is mandatory for you to open a Demat or dematerialized account.
A Demat account is basically a storage account that keeps all your shares and securities. Earlier physical share certificates were issued but now they are electronically stored in your Demat account. Also, physical share certificates had a risk of theft, which has been eliminated by Demat accounts.
In India, there are 2 depositories from where you can open a Demat account. These are National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
How does it work
When you create your Demat account, you get assigned a unique ID number that keeps an account for all the transactions you make in the share market. Your Demat, trading and bank accounts are generally linked. So the trading account uses funds from your bank account to buy/sell shares that are stored in your Demat account. The shares get credited to or debited from your Demat account.
Demat accounts can be opened through a brokerage firm online. There are certain minimum eligibility criteria to open one. Let's take a look at what those are:
Eligibility to open Demat account
Age: Contrary to popular belief, you do not need to be 18 years old to open a Demat account. There is no minimum age to invest in the stock market so an adult, as well as minors, can have a Demat account. However, if you are under 18 years of age, your parent or guardian can open a Demat account in your name. Also, you will not be in charge of your Demat account till you are 18 if your account has been opened before that age. Your parents or guardian will manage the account.
After you are 18, the depository will send an advisory to obtain documents to transfer your Demat account to you officially.
PAN Card: An adult or a minor cannot open a Demat account with a valid PAN card.
KYC details: You will also have to fill a KYC form, which is available online nowadays before your Demat account is opened.
Trading account: You must also have a trading account if you want to transact. In order to buy or sell shares, a trading account is mandatory, you don't need one if you just want to hold your shares but not sell them.
Documents Required to Open a Demat account: Apart from the KYC form and PAN card, there are a number of documents needed to open a Demat account.
Identification proof: You can use your Aadhaar card, voter ID, passport, driving license, PAN card as proof of identification. You will also need to submit your passport photo as well as your digital signature matching your PAN card signature for the same.
Bank account proof: You need a functional bank account to open a Demat account. You will have to submit either your passbook, 6-month statement or a canceled cheque as bank account proof to open a Demat account.
Income proof: Proof of income is also needed while opening a Demat account. You can submit documents like ITR (Income Tax Return), salary slip, Form 16, certificate of net worth issued by a chartered accountant as proof of income.
Address Proof: You also need to submit your address proof to open a Demat account. The can include Aadhar Card, Driving license, passport, voter ID card, or any utility bill for the last 3 months.
The stock markets are ideal venues to invest in, in order to create wealth. But it is necessary to have a Demat account for the same. The process of opening a Demat Account is completely online and hassle-free. It requires certain documentation but once your documents are in order, you just have to choose a broker. Happy investing!