Key notes to ensure safety before opening an online demat account

Demat account is an account used for holdings securities like shares, mutual funds, sovereign gold bonds, place order for IPO etc. These accounts are provided by depositories. There are 2 depositories in India namely NSDL and CDSL which are controlled by SEBI.

Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) are both government registered share depositories in India. Share depositories hold shares in an electronic form.

They maintain ownership records of financial securities, these are linked with investors through Depository Participants (DPs), also called stockbrokers. A DP is a depository agent acting as an intermediary between the depository and its clients.

There can be multiple depository participants but must be registered with NSDL or CDSL or both. Key role of a depository is to facilitate the transfer of securities held by an owner along with an update in case of change in owner of the holdings during trade.

Demat account holds the only shares and electronic mode of investments, there is no minimum balance required to maintain for these accounts, but there is always trading charges or account maintenance charges annual or semi-annual depending on the stockbroker.

An investor can open multiple accounts based on the need of it there are no restrictions for the same. Opening multiple accounts have a lot of benefits as well as precautions need to be taken while providing details while opening demat account or giving anyone personal identity documents like Aadhar or PAN card ensure the are masked. Investors must know how to protect themselves before joining the market.

Mainly there are three types of Demat accounts as below:

Regular Demat Account: This Demat account is preferred by Indian citizens who live in India who are willing to trade securities within India.

Repatriable Demat Account: Repatriable Demat accounts are usually used by non-resident Indians (NRI) who wish to trade in the Indian Market. This enables them to transfer money abroad. This type of account needs to be linked with NRE bank accounts.

Non-Repatriable Demat Account: Non-Repatriable accounts are also for non-resident Indians. However, here the funds cannot be transferred to other countries. Unlike repatriable accounts, this type of account needs to be linked with an NRO bank account.

Below are some benefits of opening demat account:

• Access to stock Market: Once demat account is opened one can have access to participate in factors driving Indian economy by trading or investing, it also includes knowledge building about capital appreciation in companies, dividend payouts for shareholding companies as well as market and overall sector understanding, importance of diversification of portfolio, and awareness about co-ownership in companies, knowing driving factors of multiple sectors.


• Access to applying IPO: IPO which stands for Initial public offer for private company can go public by sale of its stocks to public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public. For which demat accounts are required. Multiple applications can be placed with multiple demat accounts also you cannot apply for the same IPO from two Demat accounts linked to the same PAN card.


• Access to creating Mutual fund portfolio: Mutual funds is a pool of money from multiple investors and invests their money in securities such as stocks, bonds, and short-term debt. These holdings of the mutual fund are known as its portfolio. Investors do buy in mutual funds to reap benefits of investing. Having a demat account allows access to mutual funds.


• Access to corporate actions for holdings: A corporate actions is an event that a company takes which affects its shareholders and stakeholders also provide benefits, which can be availed once demat account is active of the investor and the investor is shareholder in the company.


• Access to Global stock market trading: Global economy is booming along with a boast in Indian economy; hence it is very crucial to choose brokers wisely who also provide access to global investments to reap benefits for the same. Hence demat account is very important.

Here are precautions to know before opening a demat account:

• Background verification of broker: It is utmost important to know the overall knowbots the performance of the broker with which you wish to open a demat account. Ensure they are SEBI registered and allow benefits from market situations like best brokerage plan, low maintenance fee etc.


• Quick service provider: Investor must also ensure that the services provided by broker is updated rapidly in terms of biding to new rules and regulations or updating of technical glitches or feedback in necessary improvements.


• Trustworthy: Ensuring that there are no suspicious transactions in the demat account or in transaction statements or any charges which were not disclosed. It is important to have a timely check on the statements provided by DP’s as well as regulators.


• Easy modification: Ensuring convenience while functioning in the account is as crucial as it may not sound, but easy interface of application and allowance to update nominee or personal identifying information must be checked or reviewed before.


• Ensuring no unethical practices or track records: Investor must ensure that no power of attorney is unethically taken approval of while account opening or processing. Also, in case if investor wants to choose Relationship manager, charges for the same and security to ensure that no unethical orders are placed without approval of investor, or no plans are unethically subscribed without keeping the investor looped.


• Notified for updated information: Sending required information updates on timely basis to account holders via email or SMS, or guidelines provided by SEBI or updates like Enable Two-Factor Authentication for all applications, confirm demat account is protected by using strong and unique passwords and avoid sharing them with anyone. Turn on two-factor authentication (2FA) security, it will provide extra security for your account.


• Risk from losing information: Having all the holdings in demat mode gives less risk of getting scammed or theft of robbery. It helps you to store securities in an electronic format. And not worry about misplacing investment proofs due to theft or fraudulent exchanges. It also removes the possibility of fake signatures on investment documents.


• Easily accessible globally: Having a demat account allows trading or investing anywhere globally, since there are no geographical restrictions for boundaries of the same.


• One wallet: Having a demat account is like a bank locker, where all your shares, mutual funds, bonds, IPO’s etc can be safely invested, no need of keeping multiple accessories for investing. The investors can seamlessly convert their physical certificates into digital and vice versa instantly.


• No Minimum order limits: Investments are subjected to a lot of factors and hence the limits are set to be free from any minimum balance for shares or mutual funds as well, once can place a lumpsum amount or choose buying in intervals.


• Shares can be transferred: In case if you wish to transfer or gift shares, even that can be done without much of a hassle, every broker has a unique process to transfer shares, investor may get in touch with them for details of the same.


• Shares can be dematerialized and rematerialized faster: In case an individual wishes to Rematerialize the shares, which means the process of converting the dematerialised shares back to physical copies of certificates. Since some investors choose to rematerialize their share to avoid maintenance charges on their demat account. Post- rematerialized, the investors can conduct transactions of those holdings in physical mode only.


• It can be pledged as a security to avail loan: Shares owned in demat can be used to avail loan as well, it is termed as loan against security, which means pledging the shares and availing a marginal amount against investors holdings.


• Demat accounts can be frozen: Demat accounts can be requested to be frozen as well in case if investor does not intend to transact for a long-time horizon.

Trading comes with market risk and its benefits; hence it becomes very important to place orders with proper research and enjoy the benefits of returns and being aware of risk appetite, any transaction updates, staying updated with regards to market scenarios and knowing updates on corporate actions as well as IPO’s or Gold bonds and ensure optimum utilization of demat account.