A demat account is used for holding securities in the electronic format, after they are purchased or dematerialized. It is provided by depository –CDSC. Read more about the working, functions, and use of demat account here.
Three important requisites while dealing in investments include bank account, demat account, and trading account. When one purchases shares in a company, one’s ownership is marked through a certificate. This is now available in an electronic format, which is seen as demat credit.
A central agency known as the central depository maintains all information related to demat accounts opened with DPs across the country. These include the Central Depository Services Limited (CDSL) and National Services Depository Limited (NSDL).
Several brokerage firms, banks, and other financial institutions offer demat accounts to clients. The DPs are intermediaries between the CD and account holders.
A trading account is as important as a demat account to deal in electronic securities. Every account is provided with a unique identification number that is used for all transactions.
An investor can check all of his or her holdings through the demat account. This includes equity holdings, government securities, bonds, exchange-traded funds, and mutual funds. When he or she purchases one of these investment products, it is reflected as a demat credit. Sale transactions are debited from the demat account.
Select a Depository Participant (DP) you would like to open your account with; this entity will serve as the intermediary between you and the depository. DPs can be banks, brokers or investment platforms or Merchant Bankers. Imperial has been providing this service since 2013, and is registered with the Central Depository Services Company (CDSC), as well as being a member of NEPSE (Nepal Stock Exchange)
Submit the form given to you for opening an account, the KYC form, passport size photographs, your PAN card (Permanent Account Number), and other photocopied documents.
At this point, you will be given the option to name a person as your nominee. They will be assigned with the responsibility of your shares if something were to happen to you. The choice of one’s nominee can be changed, if need be in the future, by refilling the same form.
The KYC form also has the Depository Participant-Investor agreement which comprises the terms of agreement, rules and regulations, and charges you will incur whilst holding a Demat account. This form also includes the rights of the investor and duties of the DP.
Verification: An In-Person Verification may be carried out by a person from your DP’s firm to ensure that the details provided by you in the form are authentic.
Once your application has been processed and your DP has facilitated the opening of your account, he/she will give you a Beneficiary Owner Identity (BOID) – a unique account number – that you can use during future transactions and to access your account.
You need to open a Trading account along with the Demat account so that you can immediately begin buying and selling shares.
Opening a demat account is the beginning of a hassle-free investing experience that involves neither the storage risks of paper certificates nor the time-consuming nature of offline trading.
Historically, investments were held in a physical form, which was risky due to loss, theft, or damage. These have now been eliminated as all physical certificates can be converted electronic forms, and held in the Demat account.
If the Demat holdings need to be re-converted into the physical form, individuals can easily re- materialize their securities. A re-materialization request form (RRF) must be submitted to the concerned depository participant (DP) for such re-conversion.
Individual investors can identify any other person as a nominee at the time of opening Demat account. This ensures that in the case of the death of the account holder, all the holdings in the Demat account are transferred in favour of the nominee, thus avoiding a long, cumbersome procedure.
Investors can invest in different financial products using a single Demat account. These instruments include bonds, mutual funds, exchange-traded funds, shares, and government securities. Investments in initial public offerings and systematic investment plans are also possible through a Demat account.
Account holders can receive periodic statements showing their current holdings. They can choose physical statements mailed to their registered address or electronic statements through email.
Receiving refunds, dividends, and interest payments is easier through a Demat account because it is directly linked to the bank savings accounts. This makes it quicker and simpler for companies to transfer funds to all their shareholders, which also helps reduce related expenses.
Organizations often declare bonus, split, or right issues for the additional benefit of their investors. Information on all current shareholders is directly availed through the central depository and the various depository participants. The benefits associated with any of these actions is directly available in the investor’s Demat account.
If the investor changes his or her address, or signature, he or she need not communicate such modifications to all the companies where he or she has invested. Providing these changes to the depository participant for updates ensures the information is made available to all the concerned companies.
All the investor’s holdings in the Demat account can be transferred to the nominee, survivor, or legal heir, in case of the investor’s demise through a transmission form.
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