Investing in financial securities can help earn multifold returns and build a strong portfolio. However, you cannot start investing without the proper resources in India. For instance, you might know the significance of a brokerage account for buying or selling of securities. Similarly, Demat accounts are required by investors to hold securities electronically. Instead of applying for a Demat account instantly, you must take time to understand the basics. Before you open Demat account in India, let us discuss the things to consider.
Are You Familiar with the Function of a Demat Account?
Before delving deeper, it is crucial to understand the functions of a Demat account in India. As discussed earlier, Demat accounts help investors hold electronic securities. Unlike a trading account, a Demat account is not used to buy or sell financial securities. It only stores financial securities purchased through a trading account in electronic or dematerialised form. Financial securities like stocks, bonds, mutual fund units, and non-convertible debentures are stored safely within a Demat account.
Your electronic securities will be stored in a Demat account for as long as you want. They are debited from the Demat account after deciding to sell securities via a trading account. A Demat account is also used for portfolio tracking by investors, as they can view their holdings anytime. Some of you might debate the usage of electronic securities. Without electronic securities, you will need to carry a physical certificate for each trade. Physical certificates might get lost or stolen, thus increasing your hassle.
Things to Know/Consider Before Opening a Dematerialisation Account
Here are the things to know before investors open a Demat account:
Stockbrokers and DPs
You must search for a Demat account provider to apply for a new account. It is crucial to note that DPs (Depository Participants) and stockbrokers are authorised to provide Demat account services. A DP or broker will be registered with either CDSL or NSDL, the two major depositories in India. Most investors prefer choosing stockbrokers for Demat account services. Brokers can help you with many things besides a Demat account, like a commodity account, margin trading, and investment platform services.
Linking Your Demat Account with Other Accounts
You must link your Demat account with the brokerage or trading account for ease of use. When a trading account is linked with the Demat account, securities are transferred and stored easily. Many brokers offer 2-in-1 and 3-in-1 trading account facilities for investors. The Demat and brokerage accounts are linked in the 2-in-1 facility. On the other hand, the Demat, trading, and savings accounts are linked in the 3-in-1 facility.
Account Expenses
It is essential to consider Demat account charges before submitting your application with a DP. Demat account expenses will have an impact on your overall returns. You need to start by paying an account opening fee to the service provider. Demat account users also pay AMC (Annual Maintenance Charge) to keep their accounts active. Not to forget, custodian, transaction, dematerialisation, and other charges are also applied by brokers and DPs.
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Security Features
Demat accounts offer safe storage for securities electronically. However, there are still a few cases of Demat account fraud. Because of this, you must consider the security features of a Demat account.
Support from the Broker or DP
There might be technical issues or glitches with Demat accounts at times. However, these issues can be resolved by real-time support from your broker or DP. Choose trusted brokers or DPs offering uninterrupted support for Demat account issues.
In a Nutshell
There are a few things investors must consider before they open Demat accounts. Demat account charges, service provider’s reputation, security, customer support, and ease of use are a few things to consider. Don’t forget to link your Demat account with the trading and savings account for better results. Open a new Demat account and build a diverse portfolio!
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