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Things You Should Check Before Opening a Demat Account


For years, trading in the financial market has been the prime opportunity for investors across India. With the introduction of new-age online trading platforms and tools like the free demat account, trading has become more profitable than ever. 

Opening a demat or dematerialisation account is the first step you need to take to start investing in the stock market. You cannot buy or sell until you create a demat account. To open a demat account, you need to sign an agreement that gives specific power of attorney (PoA) to the broker. This article aims at guiding you regarding things to consider before opening a demat account.


  1. Kind of brokers


If an investor wishes to enter the stock market and start trading can open a demat account with any reputed broking firm. Few companies also provide the service of free demat account opening. Broking firms are basically of two types- service broker and discount broker. A discount broker performs trading transactions in the securities and derivatives market according to the investor's directions. 


On the other hand, a service broker provides all services given by a discount broker and provides investing options in IPOs, mutual funds and insurance. Most of the broking firms are service brokers. 


  1. Account opening


As mentioned before, a demat account is a must-have along with a trading account and a bank account. Demat account holds the securities and shares in an electronic form, and a trading account is used to buy and sell the shares in the demat account. With an online demat account, you can also invest in IPO, gold, shares, mutual funds, etc.


The two depository participants in India are - National Securities Depository Limited (NSDL) and the Central Depository Services India Limited (CDSL). The securities and shares in the demat account are held by these participants. Any of the above participants can hold your shares and securities depending on the broking firm you have opened your account with. 


  1. Documents required


Just like any other form of financial account, you need to submit certain documents to open demat account. Though the documents may vary from company to company, the compulsory document is a PAN card. This adheres to the guidelines laid down by the regulatory body known as the Securities and Exchange Board of India (SEBI). This helps them track all the trades executed by the trader.


Apart from PAN card, you need to submit an identity proof and an address proof to open demat ac. Aadhaar card and passport are standard documents submitted for identity proof while driving license and ration card can be offered as address proof. 


  1. The functioning of the account


Firstly, the funds from the investor's bank account are transferred to the trading account. The trading account has a unique ID that is used for buying and selling stocks. The purchase and sale are conducted through the trading account via shares deposited in the demat account. 


Hence, when a user is holding all three accounts simultaneously, the transaction takes place in a seamless manner. 


  1. Demat account charges


There are few charges associated with opening and operating a demat account. These charges tend to vary from one depository participant to another. 


  • Opening charges


This is the first form of fee that is levied when opening a new demat account. You can also open a free demat account with certain broking firms.


  • Annual maintenance charges


Broking firms charge this fee for providing the convenience of using a demat account online. This yearly charge is levied to keep your demat account functional.


  • Transaction fee


This fee is charged by your brokerage firm when you trade. It is dependent on several factors. If your brokerage firm offers discount brokerage, then it can be extremely affordable for you.



Conclusion

If you are a beginner to the financial market, the above information will undoubtedly prove useful as you move forward. Choose a brokerage firm that charges nominal to no charges for opening and operating a demat account.

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