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DEMAT ACCOUNT

A demat account is like a bank account, but instead of cash it holds equities, bonds, ETFs, mutual funds etc. It is mandatory to have a demat account for trading in stock markets. When you buy shares the shares credit to your demat account and when you sell shares they get debited to your demat account. Demat account has to be linked to trading account and bank account.

Demat account can be opened online via online KYC with Aadhar or it can be opened offline at your DP / Broker office. For opening demat account, you must submit proof of identity, proof of residence, PAN card and cancelled cheque of the mandated bank account. In demat account, debits and credit of shares happen seamlessly. Also, updating your records and getting corporate benefits are a lot simpler with a demat account. Demat has made Indian capital markets, smoother, swifter, stronger and a lot safer.

Here are some of the key features of a demat account.

• Demat account provides quick and easy access to your investments and statements through online trading and online banking accounts. You can access these details from the PC, laptop, smart phone or a notepad.
• Dematerializing physical share certificates is very simple and the physical certificate holder only needs to give instructions to the depository participant (DP) to convert it in an electronic form.
• Disbursement of corporate actions like dividends, interest , refunds, split shares, bonus shares, rights shares is all much simpler via direct credit to DP account / bank account.
• Transfer of shares with zero stamp duty and via electronic mode is not only easier and quicker but also safer. It eliminates bad delivery, loss in transit etc.
• Demat Accounts are actively traded and hence are more liquid in the market and have made it simpler, faster and more convenient to monetize share holdings.
• It is possible to get loan against securities. If demat account and bank account are the same group, then loan against is seamlessly credited to bank against pledge.
• In case of long travel when demat account will not be in use, it can be frozen temporarily so as to disable any transactions on the demat account. Corporate actions continue.

Broadly, there are 3 types of demat accounts.

• Regular Demat account: This is the regular demat account opened by Indian citizens who are resident in India to trade in the capital markets or to apply for IPOs.
• Repatriable Demat account: This account is for Non-Resident Indians (NRIs) and funds from sale of shares can be repatriated abroad through associated NRE bank account.
• Non-Repatriable Demat account: This demat account is meant for NRIs, but funds cannot be repatriated abroad. This demat account needs associated NRO bank account.

In regular demat accounts, there is further classification of Basic Services Demat Account (BSDA) for small investors up to a value of Rs.4 lakh. The AMC charges are much lower in the case of BSDA account. It has been fixed at Nil (up to Rs.50,000 demat value), Rs.100 (up to Rs.2 lakh demat value) and Rs.300 above that. You can only have 1 BSDA account.

Normally, orders are placed either through the internet trading online platform or through the mobile app. In the case of trading through TECX Labs, there are no charges for using the platform. Access to the platform comes free of cost. However, in case you trade on the trading platform, there will be upfront margins you need to deposit as per SEBI regulations on the positions you take. In addition, any transaction executed will entail payment of brokerage and other statutory charges.

The internet trading platform and the demat platform are integrated. Again, there is no charge for using the demat platform or downloading statements pertaining to holdings or statements. In addition, TECX Labs also offers free demat account opening and waiver of first year demat AMC charges. Other charges like depository charges for debits, DRF charges, RRF charges, physical statement charges etc will be charged extra.

To be eligible to open a regular demat account with a DP, the person must be a citizen of India and must also be a resident Indian. The definition of Resident Indian is the same as the definition contained in the Income Tax Act for RIs and NRIs. In addition, the person opening a demat account must be above 18 years of age. In other words, only a person capable of legally entering into a contract under the Indian Contracts Act will be eligible to open a regular demat account in India.

The aspect on eligible to enter into contracts must be understood properly. Under the Indian Contracts Act, certain persons are barred from entering into contracts. These include persons with unsound mind, person declared insolvent, alien enemies etc. Contracts entered into in a state of intoxication are also not valid. All such persons not eligible for contracts, are not eligible to open a demat account.

There is no restriction on opening multiple demat accounts and there is no limit on the number of demat accounts. However, there are some conditions that need to be followed.

• All securities purchased through multiple Demat accounts must be necessarily attributed to one unique PAN number. It is illegal for a person to have multiple PAN numbers.
• You should link your PAN number to every demat account you open. You are free to link multiple demat accounts to a single bank or single trading account.
• You are not permitted to open two demat accounts with the same depository participant. DPs are the link between investors and the principal depositories like NSDL and CDSL. You can have multiple demat accounts with different DPs.
• It is possible to have two demat accounts with the same DP if you use a different name combination. You can have one individual demat account and one joint demat account with the same DP.

Advantages of opening multiple demat accounts

• Multiple Demat can be used by investors to segregate between short-term and long-term investments for ease of administration
• With multiple accounts, investors gain access to different features offered by different brokerage firms

However, the thumb rule is not to have too many demat accounts as it entails a cost and administering multiple demat accounts can be tough.

Trading in futures and options on equities as well as on indices are done through the trading account only. However, dealing in only futures and options does not require a demat account. Brokerage is normally charged on options on a per lot basis while for futures it is charged on a basis point charge.

• The rates of brokerage for futures trading on stocks and indices is normally charged at between 0.03% and 0.05%. In the case of futures trading, these brokerage rates are applied on the notional value (lot value) of the trade.
• Index and stock Options are normally charged at a flat rate of Rs.20-25 per lot, which is the standard practice these days. However, in the case of futures and also in the case of options, brokers normally insist on a minimum brokerage of around Rs.20-30 per executed order.

The above are just brokerage charges that are levied by the broker on the client trading in futures and options. In addition, there are other statutory levies like STT (securities Transaction tax), transaction charges, GST, SEBI Charges, Stamp charges etc. The contract note that is normally sent each evening contains the complete break up of all the costs entailed in the trade. In F&O, STT is only levied on the sell side of the trade.

Trading in equities must also be done through the trading account only. Trading in equity cannot be done unless you have a demat account. Even if trading only for intraday, demat account is mandatory. Brokerage is normally charged at a much lower rate on intraday equity trades than on delivery trades.

• The rates of brokerage for equity delivery range from 0.2% to 0.5% of the value of the transaction. However, in recent times most low-cost broking houses are offering zero brokerage on equity delivery.
• The rates of brokerage for equity intraday is normally charged at between 0.03% and 0.05%; like in futures. In the case of intraday equity trading, these brokerage rates are applied on the notional value of the trade.

These are just the brokerage charges that are levied by the broker on the client trading in delivery and intraday equity. In addition, other statutory levies include STT (securities Transaction tax), transaction charges, GST, SEBI Charges, Stamp charges etc. The contract note that is normally sent each evening contains the complete break up of all the costs entailed in the trade.