Having a demat account is a primary requirement to trade in the stock market. Thanks to technology, the process has become quite simple. After signing an agreement with the depository participant (DP) or the broker, you will be asked to fill the nomination form and sign the power of attorney (POA). It is important to remember that a demat account is more than a platform which allows you to buy and sell your shares. Therefore, having a clear knowledge about the brokerage charges, intimation charges, etc. is absolutely vital. This will help you maintain your account as well as make transactions without falling prey to cyber fraud.
Following are a few facts that you must know before you open a demat account online.
- Your account charges: Your broker is at your service when you open a demat account. You can consider your account as a store where all your shares and securities are deposited. For opening this account, you need to pay a fee. It’s also important to keep a tab of the expenses incurred. Make sure to work with a broker who charges a flat fee on all types of transactions. Otherwise, you may have to pay money every time you make a transaction.
- Functions of different accounts: For a smooth trading experience, keep a check on your bank account, trading account and the demat account. It is recommended to have all the three accounts with the same bank. Your bank account is used for transferring the funds needed to buy shares. Your trading account can be used for buying and selling securities. The shares bought are deposited in the demat account, whereas the shares sold are debited from the same account. A clear understanding of all this is very crucial to enjoy a seamless experience.
- Types of brokers: Broking firms that help individuals invest in the stock market can be divided into two types –discount broker and service broker.
- Discount broker carries out transactions in equity and derivatives on the instructions of the investor.
- A service broker, on the other hand, provides the same kind of assistance with additional services like investing in mutual funds, insurance and IPOs.
- Besides, there are also online brokers and high-end brokers who can help you with investment database information.
- Opening and closing a demat account: The first step to invest in the stock market is to open a demat account, trading account and a bank account. You can have all these accounts in separate banks, but it is recommended that you have them with the same institution. You can choose between the two depository participants- National Securities Depository Limited and Central Depository Services India Limited. Once you submit all the necessary documents and sign the agreement, your broker will assist you further.
Opening a demat account online is one of the best investment decisions you could ever make as an investor. However, make sure to stay updated on the dynamics of stock market and the factors that affect it. Do your own research and choose a bank and your broker wisely.
