There are various benefits of opening a demat account such as it is safe and convenient way to hold securities compared to holding them in physical form. No stamp duty is levied on transfer of securities held in demat form. A demat account offers instant transfer of securities thereby providing liquidity.
How to open a demat account?
A demat account cannot be opened directly with CDSL (Central Depository Services (India) Ltd). It has to be opened only though a DP (depository participant) of CDSL.
What is a depository?
A depository is a provider of facility for holding securities in book entry or electronic/demat form. It is a kind of bank for securities like shares, debentures, bonds, etc. It also facilitates transactions in the securities held by it.
Procedure for opening a demat account
The process of opening a demat account through a DP of CDSL is simple and easy. It is similar to the opening of a bank account.
An investor has to first choose a DP based on his convenience and the DP’s charges.
The investor has to submit a completely filled, signed account opening form in the prescribed format along with following documents such as photocopy of the PAN (permanent account number) card, proof of identity and proof of address.
Before opening the demat account, the investor will have to sign an agreement on a stamp paper provided by the DP. The agreement includes the rights and obligations of both—the investor and DP.
On opening a demat account, a unique beneficial owner identification number is allotted, which should be mentioned in all future transactions.
After opening a demat account with CDSL, the investor is allotted a unique demat account number, which ensures debit/credit of securities only to the intended account. Thus, if an account number is keyed in incorrectly, the CDSL system will not carry out the transaction.
A demat account can be opened and maintained even with nil balance.
An investor—already having a demat account—can open another account with any other CDSL depository participant. There is no restriction on number of demat accounts which an investor can open.
No opening charges
According to SEBI, investors should not pay any account opening charges, besides the statutory charges.
Number of account holders
A demat account can be opened in the name of a single holder account or a joint holder account. A demat account can have maximum three account holders i.e. one main holder and two joint holders.
Modification in names
Once a demat account is opened addition/modification/deletion of account holder names is not permitted.
You cannot add your last name (surname), to your demat account because making changes—to the existing demat a/c are not allowed—according to CDSL.
Even in case of marriage or divorce, an investor cannot make changes to the name mentioned in his/her demat account. You have an option to close your current demat account and open a new demat account (adding your full name).