All You Need to Know to Open a Demat Account

For a rookie, who wants to start investing in the stock markets, the most important step in getting started is to open a demat account. By opening a demat account, a person would be able to trade in securities. So, what is a demat account and why is it needed?

A demat account is the short version of dematerialized account, an account which is mandatorily required to be possessed by a person who trades in securities listed on Indian Stock Exchanges. This mandate comes from Securities & Exchange Board of India (SEBI), the regulatory body for Indian stock exchanges.

It is also very important to understand the role of a depository and a depository participant (DP). A depository is a provider of facility for holding securities in electronic form. Just how a bank keeps money for an individual, a depository keeps securities like shares, debentures, bonds, etc. Currently, there are two depositories in India. They are National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). DP is an agent of the depository who is authorized to offer depository services. These are typically financial institutions, banks, share brokers who register themselves as DP.

It is important to note that a demat account cannot be opened directly with a depository. One has to compulsorily open a demat account with a DP. There is no restriction on the number of demat accounts that a person can open. As per his/her choice and the quality of services offered, one can choose the DP. If a person wishes to open a demat account in the name of joint holders, then even that is possible. There can be maximum three account holders i.e. one main holder and two joint holders.

In case of a minor, a demat account can be opened. However, the account needs to be operated by a guardian until the minor becomes a major. Here, the guardian needs to be a father or in his absence, mother. In the absence of both, father or mother, the guardian can be appointed by court. However, a minor cannot be a joint holder.

It is very important to open a demat account online as this will enable you to transact in stocks listed on the stock exchanges at the click of a button. It can be operated from anywhere, as all you need to do is, login to your account from a computer/laptop/smartphone and start trading in stocks. So get started in this journey of money making. All the best!