The stock market is one of the most sought-after investment platforms, so it has always attracted investors and traders who enter this world of securities for profit. Stocks and derivatives traded on stock exchanges are widely favoured by investors. There was a time when stocks were issued in the form of paper certificates, and investors had to keep the certificates and transfer them to new buyers when they were sold. However, there are many issues related to storing certificates. There are also some loopholes in the system, leading to various fraud and counterfeiting problems. Therefore, a new process arose, leading to dematerialization.
The dematerialization of securities began with the establishment of the National Stock Exchange. The values are converted into electronic form and stored in the Demat account. No paper certificate is required for the entire process. It makes trading in the stock market easier and less hassle. Several loopholes have been removed.
Taking into account the benefits of Demat accounts, SEBI mandates that all investors and traders have a valid Demat account before entering the stock market.
If you want to go public on the stock market, apply for an IPO, or if you need to buy securities that require Demat account. It is a short word for dematerialised account. The Demat account is managed by Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL).
Let us take look at the steps to open Demat account:
Step 1: Choosing a depository
Choosing depositary participants is the first and most important step required to open a Demat account. Your DP will act as an intermediary between you and the custodian. The custodian can be NSDL or CDSL, depending on your hosting participant. Your Demat account may charge various fees, such as account opening fees, annual maintenance fees, etc. These are usually the most important factors that investors consider when choosing depository participants.
Step 2: Fill In Demat Account Form
Once your depositary participant ends, you will need to fill out an account opening form. Your hosting participant will provide you with this form and store all your basic data in it. After completing and submitting the form, you can proceed to the next step.
Step 3: KYC form and other documents
After submitting the form that you successfully completed, you must submit your KYC documents, including your photo ID and proof of address. These can include your driver's license, voter ID, passport, electric bill, etc. Regulators are required to send copies of your Aadhaar and PAN cards. In addition to KYC, you should also send a cancelled check to your bank account for verification and your photo. It is best to prepare copies of all these documents before applying for a Demat account to speed up the process.
Step 4: Verification Process
After the presentation of all the necessary documents, its depositories participants will ask you to go to the verification process. It is performed by DP and its representative. This helps in verifying the reliability of all the documents sent. You can also visit the DP office using all the original documents for your verification. However, after the pandemic, the verification is done using a smartphone or a webcam.
Step 5: Signing the agreement
Upon successful verification, an agreement must be signed with the DP, including all rules, regulations and rights related to the maintenance of the Demat account. We recommend that you read all of them carefully before signing and delete all doubts. If you sign and submit, you will receive a signed copy depending on who has DP authority.
Step 6: Beneficiary ID
After logging into the contract with the DP, the DP will proceed with the application. If the application is approved, you will be assigned a payee ID, which will be your Demat account number. You can now use your Demat account to store your stock.
In order to start trading you must have trading account along with Demat account.
Conclusion
Dematerialization and the introduction of Demat accounts can simplify the investment process in the market, but it must be remembered that the investment market requires experience, knowledge and research. It is recommended to assess your risk profile before making any type of investment.