How to Choose Demat Account?

• 25 April 2017 | 1498 Views | By Mint2Save

For very obvious reasons, holding securities in digital format is a lot better than in physical format. This process of converting physical securities to digital format is called dematerialization. The accounts where securities (including Sovereign Gold Bonds) are held, are termed as Dematerialized Accounts or Demat Accounts.

When you want to trade in equity market or to buy or sell stocks, mutual funds and other market dependant securities,  then you need to open a Demat account. It is similar to as opening an account with a bank, where all the shares purchased by you are accounted in an electronic form. In order to open your Demat account, you have to move towards the DPs (Depository Participant), who will be responsible for completing your KYC, manage your money and inform you about any changes made.

This account will help you to purchase and sell shares without nonstop paperwork and delay. Here the question arises who offer demat account services? Banks and the Brokerage firm’s offer you the demat services.

Let us suppose your portfolio of shares looks like this 60 shares of BHEL, 40 of R Power, 200 of Tata Motors and 100 of Sesa Goa. All these will be shown in your Demat account, so you do not have to hold any physical share certificates which show that you own these shares. They are all accounted in electronic form in your account. When you purchase and sell the shares then they will be automatically held in your account. The Depository participant will offer you with periodic statements of transactions and holdings.

The charges for account opening, annual account maintenance fees and transaction charges vary between DPs Depository participants.

The key measure for selecting or choosing these accounts is:

1. Cost of trade & Broker:

In short, how often are you going to buy or sell and is it intraday (where you buy or sell on the same day) or delivery based (you buy stocks by paying the value of your buy). Select the Broker who provides very cheap broking cost according to your transaction style.

2. A Complete solution:

 Now don’t look at one individual product such as a demat account but a complete solution. In spite of everything, the money in the savings account will be linked to your trading account for purchasing and selling shares and ultimately the trading account will be linked to your demat account for storing these shares.

3. Internet based trading:

All the brokers have inbuilt software’s and even some of the brokerages try to make their websites very attractive and use hi-fi new web based applications (for example – Flash on websites). Ease of use is very much significant to understand and act instantly in day trading.

4. Day trading Square off Timing–

When you do an intraday trading then on the final day you have to square off the position. If not, then the broker begins himself. Therefore, check the timing of such beginning. It is normally before few hours of market closure.

5. Service:

When you need any type of help in placing orders or other activities such as a modifying bank, address, or nominees then you have to take the help of brokers. Though, you must check for their services provided by them. It is though important to know that how quickly they respond to you and resolve the problem.

6.  Think long run:

In a situation you have a demat account and you have existing shares in it and you want to shift to another demat account; transfer of shares is not cheap. One demat accounts I checked chargerd Rs.50 per company which is to be transferred. If there would have been 20 companies, it is going to cost me 1000 (50*20) and others. So, do find out what this amount is, in case you are ever tired of ineffective service and you want to change that demat account. Buyers beware! As these transfer rates are never mentioned everywhere.

5. Opening 3 in 1 accounts:

Now days, Bank account, Demat Account, trading account is not easy any longer. Individual needs address proof, identity proof, registered mobile number for immediate authorisation, etc. So, think about the long term insinuation before closing any of these.

Is Demat Account necessary?

• Instant transfer of securities.
• No need to pay for stamp duty on transfer of securities.
• It is a safest and convenient way to hold securities and for long term investments.
• Removal of risks related with physical certificates such as bad delivery, fake securities, thefts etc.
• Elimination of the risk of holding shares and bonds in the physical form.
• Reduction in transaction cost
• Reduction in paperwork and delay which helps in quick transfers.
• Nomination service.
• Alter in address recorded with depository participant gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them individually.
• Automatic credit into a Demat account of shares, occur out of bonus/ split/ merger etc.
• You can hold investments in equity and debt instruments in a single account.

Two types of demat accounts—

1) Repatriable demat account

The Repatriable funds are deposited in a separate bank account called as the Non Resident External Account i.e. NRE account. Repatriable funds are those funds which can be easily transferred overseas.  Repatriable Demat account is maintained for all the investments made from these funds.

2) Non-repatriable account

Non repatriable funds are where amounts cannot be taken abroad and are deposited in a different bank account called as the NRO account. The investments made from these funds are deposited in the Non repatriable demat account. But the money can simply be transferred from an NRE account to an NRO account. But, when the transfer is made, the reparability is lost, thus cannot be transferred to NRE account back again.

Most of the companies offer a demat account along with a trading account. This smoothens the process of trading and keeping account of the stocks. Of course the service of maintaining and operating a demat account is charged with a fee, but the benefits are definitely more.

With the advent of mobile based application, now anyone located anywhere can check, sell, buy and account for all his securities in the demat account.