If you are interested in dealing in equity shares, you need to know about all the norms related to it. Market regulator Securities and Exchange Board of India (SEBI) has laid out certain rules, which should be followed by every investor when buying or selling equity shares. You need to open a trading and demat account for investing in equity shares.
A trading account is a dematerialized account, which allows transactions of securities in an electronic format. This account allows investors to trade and the shares traded are then deposited into a dematerialized account. A dematerialized account, popularly known as a demat account holds all the purchased shares in a digital form. Any company listed on the stock exchange has to offer the securities in physical as well as dematerialized form. The issue of physical certificates for the purchase and sale of securities has been closed since 2000 and investors can only invest in securities through their demat accounts.
Features of a demat account
This account has a number of features and benefits, which make it easier for investors to invest in securities.
- Holders of such an account can transfer their holdings with the help of a ‘Delivery Instruction Slip’ (DIS) for buying the securities or a ‘Receipt Instruction Slip’ (RIS) for selling the securities.
- Holders can provide instructions to their Depository Participant (DP), who is usually an agent or broker, to convert the physical certificates owned by them into a dematerialized form.
- Holders can easily freeze the account if need be.
- The account can be accessed through a computer, smartphone, or any other device.
Benefits of a demat account
The benefits of this account are mentioned below.
- This account carries low risk since the investment is held in an electronic form only.
- It is easier to keep track of the investments as compared to keeping a track in a physical format.
- Account holders can conveniently purchase, sell, and keep a record of their holdings all at one place.
- There are no additional expenses involved in the purchase and sale of securities. The payment for stamp duty and handling charges in case of physical securities has been eliminated.
- Buying and selling of securities are possible for any number of quantities.
- When dividends or bonus shares are declared, they are automatically credited to the account.
How to open a demat account
Investors need to understand how to open a demat account. They need to approach a DP registered with the Central Depository Services Ltd. (CDSL) and the National Securities Depository Ltd. (NSDL). After the account opening form has been filled, a cancelled check of the bank account, which needs to be linked with the trading account, should be provided. An agreement with the DP has to be signed in a standard format, which will carry details of the rights and duties of the DP and the investor. Required documents include identity proof, original PAN card, address proof and three passport size photographs. Once the account is opened, there will be an account maintenance charge, which has to be paid by the investor on an annual basis.
The image from a DigitialBlogger below shows the steps of how to open a demat account
How to open Demat account
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