The function your savings bank account fulfills for your money, your demat account does it for your shares. To be straight and succinct, a demat account holds all your shares in a dematerialised and electronic format. All your financial machinery including government securities, mutual funds, shares, bonds are held by Demat accounts. If you want to trade in the stock market it is mandatory that you have a demat account.
Now lets see how a demat account works:
The CDSL and NSDL are two depositories in India that holds all demat accounts. A unique identification number is associated with every demat account and this is the number that you are supposed to provide while buying or sharing any share or bond in short making any transaction. This number make the companies identify you and deposit the shares and bonds in your account.
Then there are depository participants who provides a connection to the central depository. They are the brokers or financial firms that offer demat services.
Whenever you check your account,m you can see all the securities your demat account holds, this is also called portfolio holding. Whenever you make any transaction, these portfolio holdings and details are automatically updated.
Now lets get to the brass tacks! – how do we open a demat account?
The very first step is to choosing a Depository participant. There are many depository participants out there sone of them are 1. Globe capital market limited, 2. SMC global securities limited, 3. HDFC bank limited, 4. Sharekhan limited, 5. Edelweiss securities limited, 6. Kotak securities, 7. India Infoline limited so on and so forth.
Once that is done and you have chosen a depository participant, you have to fill up a demat account opening form with the required documents and a pan card! After which, a copy of the rules and regulations and the terms and agreements will be handed over to you which will also include the charges that will be borne by you. When Depository participant is done processing your documents for the account opening, it will give you your account number and the unique id that has been spoken about earlier on. You have to use these details to access your details on your demat account whenever you want to. A monthly charge of maintenance of the demat account has to be paid by you and at the same time you also have to pay the charges for buying and selling securities, these charges differ in almost every depository participant.
Unlike a normal savings account a demat account can be opened even of one doesn’t hold and shares and the maintenance of shares in the account is not necessary to keep the account operable.