Have you made up your mind to buy shares this year? Or have you decided that at least a part of the initial public offering is what you desire? If your answer is yes then you need to open a Demat account. Then there are a few questions that need to be addressed.
Do you know the difference between a depository and a depository participant?
A depository is a place where the stocks of the investor are held in an electronic format. This is more like a bank. The head office where all the technology is present and the details of al the accounts held is like the depository. And the DPs are like the branches that cater tp the individuals.
There are just two depositories in India namely the National Securities depository Limited which is also known as the NSDL and the central depository services limited also known as the CDSL. There are more than a 100 DPs
What is a Demat account?
Demat account is a Dematerialised account. When you want to save money pr you need to make a payment in cheques you need to open a bank account and when you want to buy and sell stocks you need to open a Demat account. Therefore is like a bank account where the actual money is replaced by shares. You have to approach the DPs which are like bank branches to open your Demat account. For instance if your portfolio shares is more like 40 shares o Infosys, 25 of Wipro, 45 of HLL and 100 of ACC, everyone will show in your Demat account.
Therefore there is no need for you to possess any kind of a physical certificate that show you that you are the owner of these shares. They are there present in your account in an electronic format. Whenever you buy and sell the shares they get adjusted into your account. This is more like a bank passbook or an account statement, the DP will provide you with statements of your holdings and statements from time to time.
Do you want to know whether the Demat account is a must or not?
Nowadays all trade have to settled in a Dematerialised form, although the market regulator, the securities and exchange board of India also known as the SEBI has allowed trades of upto 500 shares to be settled in a physical format, however the case is that no one wants a physical share anymore and it has now become a thing of the past.
In order to begin you have to first look for a DP to ha an account with. Sometimes the banks are the DPs and some banks are even brokers. You can choose your own DP.
These are few elementary points pertain to the Demat account