In 2016, the demonetization policy changed the way we buy and sell things. It was a step towards making India a cashless economy. Similarly, 20 years before demonetization, India witnessed the dematerialization phase.

History

In 1996, a significant step was taken to free the stock market of physical share certificates. At that time, shares were sold in physical form. If you wanted to buy a share, you paid cash to the trader and received a certificate. Imagine the amount of paperwork each investor had to manage! Encashing these stocks was also a time-consuming process. The dematerialization policy aimed to convert physical certificates into electronic form and simplify the entire process.

What is a Demat Account?

Just like a bank account holds money, a Demat account holds shares, mutual funds, bonds, government securities, and exchange-traded funds (ETFs). Every time you buy a share, it is credited to your Demat account, and vice versa. It is mandatory for every investor to have a Demat account.

Role of a Depository

India has two depositories: NSDL and CDSL. They maintain the details of all Demat accounts in India in electronic format. You can open a Demat account with either of the two depositories. They facilitate the buying and selling of securities.

Role of a Depository Participant (DP)

Once you have selected a depository, you can open a Demat account with any of its DPs. A DP is like a retailer. For example, if you want to buy Nestlé’s Maggi or Cadbury’s Dairy Milk, you wouldn’t visit the offices of Nestlé or Cadbury. Instead, you would buy these products from a local supermarket or grocery store. Similarly, to transact in securities, you can open an account with a DP. This could be an NBFC, broker, or bank. Stocko is a reputed DP that facilitates online transactions in the stock market.

How to Open a Demat Account?

1. Select a DP: Choose a Depository Participant (DP) that offers good services. You can also opt for a DP that provides online services, such as Stocko. Visit the website www.stocko.in for more information.
2. Application: Submit a duly filled Demat account opening form along with copies of KYC documents. These include your PAN Card, proof of address, proof of identity, and bank account details.
3. Documentation: Upon submitting all the required documents, you will receive a copy of the rules and regulations, along with the charges you would incur. A copy of the terms of the agreement will also be provided.
4. Verification: A representative from the DP will either visit you in person or call you to verify the information you’ve provided.
5. Account Number: Upon successful verification, you will be assigned a unique account number and ID from the DP.

You can now operate your Demat account online. You are liable to pay an annual maintenance fee and a transaction fee.

Benefits of a Demat Account

• Security: Your shares are securely stored, with high-level data privacy standards in place.
• Convenience: You can invest in shares anytime and from anywhere.
• Faster Settlements: Electronic settlements are much quicker compared to traditional methods.
• No Risk of Loss: There is no risk of theft, loss, or non-delivery of physical certificates.
• Flexibility: You can buy and sell as little as one share.
• Comprehensive Transactions: You can transact in both shares and debt instruments within a single account.
• Cost Savings: Demat accounts eliminate the extra cost of stamp duty, which was applicable on physical securities.
• Ease of Maintenance: Managing and tracking your investments becomes much easier.

The dematerialization policy has proven to be a boon for all investors. With these benefits and the ease of transactions, investing has become much more accessible, even for beginners.