Mankind has been on the path of productivity since it came into existence. The urge to reduce our efforts in carrying out tasks and solving problems has made us reach the heights of advancement we witness today. Let us consider the example of modern book keeping. Businesses had been recording transactions in physical form until the introduction of book keeping software. Today, we can prevent the hassle of manually creating and preserving these books of accounts while easily sharing their contents with use of such software. Similarly, a Demat account is an arrangement which goes a long way in easing the process of trading and maintenance of financial securities.
Definition of a demat account
A Dematerialised Account, commonly known as a Demat Account is an arrangement to facilitate the holding of financial instruments and securities in a digital format. Thus, along with shares it can digitally hold commodity bonds, mutual funds, ETAs and other such assets. Henceforth, they are readily available to be traded online with convenience and with a wider access to the market. The word ‘dematerialisation’ refers to the conversion of share certificates from their physical to electronic form.
Importance of demat accounts
The initiation of depository system by the Securities and Exchange Board of India under the Depository Act of 1996 aimed at facilitating the sale, purchase and trading of securities and alleviate the risks involved with paper certificates. An arrangement was thus needed to provide a safe and secure access to a shareholder’s important assets. India adopted the Demat account system making it compulsory for a person interested in trading of shares to hold a Demat account with an investment broker linked to a savings or other funded account.
Quick overview of benefits of demat accounts
- Ease of maintenance -owing to reduction of paper work, ease of access and mobility.
- Economical- with reduced costs of printing, handing, stamp duties and costs of transfers.
- Improved control- with efficient tracking of different types of financial instruments with a single account.
- Reduced risks- from loss by thefts and prevention against forgery.
FEATURES OF DEMAT ACCOUNTS
- Transfer of shares: Demat account holders can carry out the process of trading of shares by transferring them through delivery instruction slip (DIS) and Reciept Instruction Slip(RIS). These tools allow the users to provide the details to carry out the required transactions.
- Easy Conversion or dematerialization: By instructing their respective Depository Participant (DP) a person can easily initiate the process of Dematerialization i.e. conversion of securities from their physical to digital form as well as Rematerialisation i.e. conversion of securities from their digital to physical form.
- Access to Corporate Benefits: Various corporate actions like offering of dividends, refunds and interest to shareholders and benefits like providing bonus shares, right shares and stock splits are automatically settled and reflected in a Demat account.
- Multiple access options: Information stored in demat accounts, like any other digital information, can be accessed over the internet via multiple devices like computers and smartphones. They allow a user to track and maintain their portfolio and aquire any required information even from the comfort of their homes.
- Option to freeze Demat account: The Demat system allows the user to freeze their demat account for a certain period of time to prevent any unexpected credit or debit transaction from happening.
DOCUMENTS REQUIRED TO OPEN A DEMAT ACCOUNT
Just like any other account, opening the best demat account requires some of the documents to be presented to the broker. These documents required for opening a Demat Account include:
- A proof of Identity
- A proof of Address
- A proof of income
- A proof of bank account
- A PAN Card
- 1 to 3 passport size photographs
Let us see in detail what all documents are required at the time of opening a Demat Account.
- A proof of Identity: It includes the following documents
- A PAN card with a valid photograph of the applicant. It is a mandatory requirement for all the applications except for those who are exempted from presenting it at the time of account opening.
- A Unique Identification Number or UID like Aadhar Card, passport, Voter ID card, or driving license.
- Identity card or document with the photograph of the applicant which is issued by the Central or State government to its departments.
- A Proof of Address: Following documents suffice as a proof of address while applying for a Demat Account
- A passport, Voter Id card, Ration Card, A registered lease or sale agreement of residence, Insurance copy, etc.
- Utility bills including Telephone bills, electricity or gas bills, which is not more than 3 months old.
- Bank Account Statement or Passbook which is not more than 3 months old.
- Self-declaration by Supreme Court or High Court judges.
- Proof of address issued by bank managers of scheduled commercial banks, co-operative banks, or multinational foreign banks, elected representatives, or any government or statutory authority.
- Identity card or document with address issued by central or state government to its departments, public sector undertakings, colleges or affiliated universities.
- The proof of address in the name of spouse is also acceptable.
- A Proof of Income: Following list of documents are admissible as a proof of income when opening a Demat account.
- A copy of the Income Tax Return acknowledgement slips which is submitted to the Indian Income Tax Department.
- A net worth certificate that is certified by a Chartered Accountant or a copy of Annual Accounts duly audited by a Chartered Accountant.
- Proof of salary in form of a recent salary slip
- Current bank account statement reflecting the clients’ income history for a period of past six months.
- Other documents substantiating the ownership of assets through self-declaration.