A Dmat account is unique to the country of India and it is basically nothing but a dematerialized account. Confused about what I’m saying? These accounts are established exclusively for Indian citizens to trade in stocks and shares and are required by Investors for the SEBI or the Stock Exchange Board of India. This account is basically there to take care of transactions electronically – shares and accounts are held electronically and the investor doesn’t have to take the trouble of physically obtaining certificates for the same.
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What it is a Demat Account?
This particular type of account is opened by an investor when he or she decides to enlist the services of a broker or a sub broker. An exclusive account number is given to the investor which must be quoted for all future transactions. In order to regularly access this account one must have a transaction password as well as the Internet password at the ready.
This facility is extremely convenient. Before demat accounts were introduced in 1996, the entire process of selling and buying stocks and shares was a really complicated one involving high risk of loss because the time delay involved in acquiring physical certificates.
Demat Account Opening Charges
So what does it take to open a demat account or more importantly, what’s the pocket pinch? There are basically four sets of fees which one needs to pay and these are:
- The Initial Fee for opening the Account- Sometimes one does not need to pay this fee, especially if you are dealing with private banks such as Axis or HDFC. Other banks such as ICICI or the government owned State Bank of India levy this charge. The important thing to remember is that this fee is refundable and you can get back the entire amount should you choose to close your account.
- Maintenance charges- You need to pay this in advance and this is your payment to the bank for looking after your account.
- Transaction fees – This is the amount you need to pay for crediting or debiting stocks or shares from your account on a monthly basis. This might be a flat rate or might depend on your transaction value, depending on the bank which you choose to work with. Sometimes you might have to just pay for buying or selling. A lot of times you might even need to give service charges.
- Custodian fees- this is a fee which is charged annually and basically depends on the number of securities which are present in the account. This is generally between 50 paise to 1 rupee per security present in the account.
Advantages and Disadvantages
Advantages & Benefits of a Demat Account:
For starters it is a great way to trade in stocks and shares since it is so convenient. One can transfer securities without any time delay. Also, you can save the cost of stamp duty on the transfer of securities. You can choose to share any number of shares and there isn’t any odd lot problem. The risks involved in trading are lower because you won’t be subjected to risks which are associated with delivery, thefts, or even fake certificates.
But there are two sides of the coin and the demat account doesn’t come without its fair share of disadvantages. If there are dematerialized securities, trading might become uncontrolled. Moreover, the role of stock brokers in the market need to be closely supervised because the DEMAT account gives them a much greater opportunity to manipulate the stock market.
There may be several layers of agreements which might not be such a good thing for investors looking for simple, hassle free transactions. On the whole though, the advantages of a demat account, outweigh the disadvantages so do consider opening one if you are looking to play in India’s stock market.
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