DMAT refers to a dematerialized account, which is similar to bank account where actual money is replaced by shares. So Demat account can be best defined as an account where shares and securities are held electronically instead of the investor taking physical possession of certificates. The demat account number is quoted for all transactions to enable electronic settlements of trades to take place.
Why do NRIs need such an account?
As you open a bank account to save your money, make cheque payments etc, you need to open a demat account if you want to buy or sell stocks. Nowadays, practically all trades have to be settled in dematerialized form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more. So a demat account is a must for trading and investing.
The benefits are as follows:
- Easy and convenient way to hold securities
- Immediate transfer of securities
- No stamp duty on transfer of securities
- Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)
- Reduced paperwork for transfer of securities
- Reduced transaction cost
- Traders can work from anywhere
Process about opening a Demat Account?
For opening a demat account you must have a Pan Card. Steps involved in opening a Demat account are as follows:
- Approaching a DP and fill up the Demat account-opening booklet. The Web sites of the NSDL and the CDSL list the approved DPs.
- Receiving an account number and a DP ID number for the account. Quote both the numbers in all future correspondence with your DPs.
You can operate your account by giving the filled in delivery instruction slips provided for selling the shares in your account. The shares you buy will get credited to your account a few days after you buy.
Cost and fees for Demat Account
There are four major charges usually levied on a Demat account: Account opening fee, annual maintenance fee, custodian fee and transaction fee. All the charges vary from DP to DP.
The fee also differs based on the kind of transaction (buying or selling). Some DPs charge only for debiting the securities while others charge for both. The DPs also charge if your instruction to buy/sell fails or is rejected.