How to Use of a Demat Account

Holding documents in digitized form has become more popular than ever before. The reason for that is very simple. Documents stored in digital form are more secure and easily accessible.

Just as digital wallets like Google Pay, Paytm helps you transact money digitally without the need to carry physical cash, similarly, a Demat & Trading Account helps you transact in shares digitally.

A Demat Account holds all the shares you’ve purchased or dematerialized (including stocks, bonds, mutual funds, Exchange Traded Funds etc.) in electronic form. It’s mandatory to have a Demat and Trading account, if you wish to trade in the stock market.

Now, if you are a new investor, you may find the technicalities a little difficult to understand because you haven’t operated a Demat Account before or may not have bought shares previously using a Demat Account.

So how do you go about it? Let’s take a look.

How Do I Use a Demat Account?

Opening, managing, and using a Demat Account is straightforward.

At first, you need to select a Depository Participant (DP) to open a Demat Account. After that, you need to fill out the account opening form along with submission of the identity proof, address proof, PAN card, and a photograph. Once you upload the documents and select the brokerage plan, an in-person verification gets initiated. Once the application is submitted successfully and verification is done, client ID and password is generated. You can use it to login to your Demat & Trading account online.

You need to note that other than a Demat Account, you would also require a Trading Account to perform the buying and selling of the shares. Once you place order to buy, a request is sent to the stock exchange. Once the order matches with another investor who placed a sell request at a similar price, the order gets executed. It takes T+2 days for the credit or debit of shares in a Demat Account after the execution of trade and the confirmation from the exchange. (T is the day of trade).

What are the important terms associated with a Demat Account?

Following are some of the important terms associated with a Demat Account.

• Dematerialize Securities – All investments are stored in electronic format now. All the physical certificates can now be converted into electronic forms and held in a Demat Account. This process is called Dematerialization.

• Rematerialize Securities – It’s the process by which an individual can reconvert their Demat holdings in digital form into physical form. An RRF (Rematerialization Request Form) needs to be submitted to the DP for such reconversion.

• Central Depositories – It is a central agency that keeps all the information associated with Demat Accounts. There are two Central Depositories in India: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). NSDL is the first depository in India to offer trading and settlement of securities in a Demat format.

• Depository Participants – Depository Participants are registered agents of the Depositories. They act as a mediator between NSDL, CDSL and traders and investors. An investor has to open an account in a depository through the help of a DP.

• Electronic Certificate – As and when you buy equity shares, your ownership of those shares is marked via a certificate that’s available in electronic form and stored in your Demat Account. It’s known as an electronic certificate.

• Portfolio holding– A Demat Account holds all your shares and securities in electronic form. It helps keep a track of all your investments in shares, bonds, Exchange Traded Funds, Mutual Funds in one place. Together they are known as portfolio holding. You can access all of them through your Demat Account.