As we know a Demat account is mandatory to start stock trading. If you are wondering what is demat account, then think of it as an account used to hold your securities electronically. When you buy shares or other securities, it will be credited in your demat account and when you choose to sell it, your Demat account will be debited.
Following are the 5 points that you should know before applying for a DEMAT account:
1) Why it is important to open a Demat account:
A Demat account is safe and secure. All activities in the account take place through a secure online connection. You can start trading without the hassle of handling physical certificates of securities. It makes the entire process of investing, holding stocks, and monitoring your investments more convenient and faster.
2) How to open a Demat Account?
One can open a Demat account online in easy steps. You need to complete the KYC process online. Fill in your personal details, upload your required e-proofs and your account will be activated post verification. That's it. You can start trading without the hassle of handling physical certificates of securities. You can instantly start trading across platforms.
It is important to find a stock brokerage firm offering the best services to their clients such as lower transaction costs under affordable plans. Compare brokerage fees of different brokers and then decide.
3) Types of Brokerage Firms:
You should research well to choose the best brokers in India. There are two types of brokers:
(I) Discount Brokers: A discount brokerage firm will simply provide you with account opening services and allow you to trade in limited securities i.e. equities, mutual funds & futures & options. They charge lower fees and are more likely to offer paperless account opening online. Discount brokers are getting popular increasingly among traders because of internet accessibility in major parts of India.
(II) Full-service Brokers: A full-service broker provides the facility of advisory services along with the facilities for holding mutual funds, equities, futures & options, commodities, Initial Public Offerings, currency, and other investments. They will provide you with detailed fundamental and technical research reports that will be helpful to manage your investment portfolio.
4) Brokerage Fees And Other Charges:
Most brokerage houses offer free Demat accounts. There will be no charges applied to open a Demat account. But apart from Demat account opening fees, there are some other charges that a broker will levy on investors. Following are the charges that an investor will have to pay for stock trading:
(I) Transaction Fees: Whenever traders buy and sell securities, there will be a transaction fee to be paid to the broker. The transaction fee must be checked carefully by traders.
(II) Annual Maintenance Fee: Your broker can charge you annual maintenance charges (AMC) for operating a demat account. Many brokers are offering free annual maintenance for at least 1 year of opening a Demat account.
5) Power of Attorney (PoA):
You can open a DEMAT account online. But it is mandatory to sign the Power of Attorney in paper format as per the SEBI guidelines to activate selling from your Demat and Trading account.
After knowing what a Demat account is, it's importance, and the account opening process, you can research in-depth to choose the right broker for you. It is advisable to go for discount brokers who provide technology-based trading platforms and a flat brokerage rate per trade.