A Demat account ensures a simple, seamless, paperless, and genuine trading and investing. However, to maintain the genuineness of the process, you need to provide certain documents for opening a demat account.
OPEN A DEMAT ACCOUNT
A demat account is a place where you hold or store the shares and other equity-related investments in their electronic format. Just like a bank account is for your money, a demat account is for your investment portfolio.
The demat account makes investing in shares a safe and streamlined experience. As the share certificates get converted to electronic format, it increases their accessibility and ease of handling. As per the Securities and Exchange Board of India, opening a Demat account is necessary if you want to buy, store and sell shares. Demat accounts can be opened without possessing any shares and maintaining a zero balance. For this, you need a depository and a participant registered with the depository.
Depository Participants (DP) are authorized links between the Depositories and investors. It can be a bank or a brokerage firm or any financial institution which is registered with the SEBI as a facilitator of trade in equity investments.
A depository is a central entity where the stocks, shares and other financial securities are stored in an electronic or dematerialized format. It facilitates buying and selling of securities online for investors while maintaining comprehensive data of the holdings and ownership records.
There are two Central Depositories in Indiaâ€“ the National Securities Depositories Limited (NSDL), promoted by the National Stock Exchange (NSE) and the Central Depositories Services Limited (CDSL), promoted by the Bombay Stock Exchange (BSE), through which the authorized DPs can hold and manage financial securities.
A Depository Participant, apart from being registered, has to follow all the rules and guidelines laid down by the SEBI for a safe, transparent, seamless and streamlined Demat trading. It has to keep comprehensive records of each individual investor and provide a secure environment to trade. It should make offers and security procedures available to its investors and charge fair brokerage, wherever applicable.
Once an investor decides to trade in online equity shares and other investment options like mutual funds, bonds, government securities, and exchange-traded funds, he can approach a Depository Participant registered with either the NSDL or the CDSL. Once the documentation process is complete, the DP opens a Demat account for the investor, either with the NSDL or the CDSL.
The investor is provided with a Unique ID called the Demat account number. The total characters in every demat account number in India are 16; however, the format of the account number depends upon which central depository the account is opened with. If the Depository participant opens the account with the NSDL, the first two characters of the Demat account number are alphabets determining the country the investor belongs to, and the following 14 characters are numerical, for example, IN98765432123456.
If the Depository Participant chooses the CDSL to open the Demat account with, the account number will consist of 16 numerals, for example, â€œ9876543212345678â€.
Every Demat Account number is divided into two parts â€“ the DP ID and the Client ID. Let us understand what each of them means.
A Depository Participant (DP) ID is the unique identification number provided to the registered depository participant by any one of the Central Depository. Every Depository Participant has to be registered with either one of the two Central Depositories in India and hold securities through them. It is always helpful if your trading broker is registered as a depository participant, as it makes demat trading a seamless and streamlined experience. A depository participant can trade securities through the Central Depositories which enables them to help their clients with demat related issues.
Client ID is a unique number allotted to a specific investor. It enables the depository participant to identify a specific client and access their unique portfolio. There are multiple investors with unique portfolios having a demat account with a depository participant. A unique client ID, just like the unique PAN numbers or Aadhar Card numbers, makes it easier to find and manage a specific client, access their account details, handle their portfolios and manage their holdings.
In a specific demat account number of an investor, the first 8 digits are the DP ID, and the last 8 digits are the unique client ID. Referencing the above examples here, for the demat account number IN98765432123456 with NSDL, IN987654 is the DP ID and 32123456 is the unique client ID. Similarly, for the demat account number 9876543212345678 opened with the CDSL, 98765432 is the DP ID and 12345678 is the unique client ID.
A demat account enables an investor to opt for a safe platform to trade in equities and diversify his investment portfolio. The Depository participants provide the requisite knowledge and support to these investors so that they can make a well-informed decision regarding their investment. The DPs help investors recognizing their investments goals and objectives, and find the perfect portfolio with the correct mix of holdings. The central depositories, NSDL and CDSL, ensure a comprehensive database and records of all the investors in the country.
Prior to 1996, investing in shares entailed a lengthy procedure with cumbersome paperwork. It involved the hassle of managing paper-based share certificates and was a costly affair. Dematerialization of shares and the regulation of the online platform through SEBI, has made trading in shares easy and accessible for every individual who wishes to invest in the diverse instruments.
The Demat Account Number is one of the important aspects of the demat account framework. It helps the Depository Participant to identify and manage unique clients and their portfolios easily. It also helps the investor to separate all of his different demat accounts held with the same or different Depository Participants. The DP ID can also help the investor to verify whether his depository participant is registered with a central depository or not. The unique client ID is also used as a login ID for online transactions and thus, increases the trading security of an investor.
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