First of all, we would like to congratulate you on taking this decision to open a Demat account. The world of trading and investing has ample opportunities for those who do due diligence and are always wary of the steps they take. We will explain the process of how to open a demat account in India in 4 easy steps.
Open a Demat Account Overview
To open a demat account is a piece of cakewalk these days with some of the stockbroking firms claiming to open a demat account within 4 hours. By the time, this duration will get even smaller and probably be competing with some of the pizza delivery promises! You never know.
In this detailed review, we will talk about how to open a demat account with complete information on the different steps involved.
How to Open a Demat account in 4 easy steps, here we go:
Open a Demat Account – Step 1:
Pick the Stock Broker or the DP
First things first, you’d need to narrow down onto a specific Stock broker through whom you’d carry out trading and investments. In the current scenario, there are 3 types of Stockbrokers you can choose from:
Bank-based stockbrokers provide you with a perception of safety (although most of the SEBI registered stockbrokers are safe in nature) since they come from the roots of a banking brand. Such types of brokers are known to provide a reasonable quality of customer support, 3 in 1 Demat Account etc.
However, banking stockbrokers are the most expensive ones. Generally, they end up charging you 0.4% to 0.6% of your trade value (in the delivery segment) which kills the profit you can potentially make from your trades.
Full-service stockbrokers provide mainstream stock market trading and investment services. Although the kind of value this type of brokers provides are in similar lines of what is provided by bank-based stockbrokers, these are relatively less expensive as compared to the latter.
A small fraction of full-service stockbrokers also provides high-quality research and recommendations along with offering reasonable offline presence through their sub-brokers and franchise offices.
Discount brokers are no-frills low-cost stockbrokers that offer no research, no offline presence, average customer support. However, the trading platforms provided are of high-performance to go along with low brokerage charges across trading segments.
Once you have been able to decide on which stock broker to go ahead with, the next obvious thing (in the process of how to open a demat account) you need to do is set up a callback and get started with the formalities involved. These formalities include:
Dispatch the documents or get a pick up arranged by the stockbroker
Apart from these documents, you will be required to sign a POA document.
POA or Power of Attorney, as per the regulatory bodies, is not a mandatory document. However, in case you are looking to trade in the delivery segment where the stocks you buy will be stored in your demat account, in such cases, signing a POA is required.
Otherwise, if you are looking to trade at intraday or in the derivatives segment, then in such cases, there is no need to sign a POA.
Make sure to get a copy of the account opening form, POA or any other documents you might have signed.
Here is a quick infographic on How to Open a Demat Account in India
Once you have dispatched the documents, the stockbroker will perform an IPV or an In-Person verification where they’d either:
Send an authorized person to your address and verify you in person or
Get the IPV done online through Skype, Whatsapp or any other video calling mechanism
The latter option has been recently adopted by one and many stockbrokers in order to quicken the process of onboarding a client. This step is taken to make sure the submitted details match with the actual person, thus, to avoid any sort of unforeseen forgery issues.
In the final step, you don’t really need to do anything.
This is the step where the stockbroker verifies all the details, generate a client ID or an account number for you. You also get user id and password for different trading platforms to access. Once you receive these credentials, you are good to go and start trading.
This also needs to be noted that a lot of stockbrokers are opening trading accounts online. This makes the whole process much simpler, quicker and efficient.
For reference, you can check a couple of articles here:
Furthermore, if you are someone who prefers a physical connection with the local sub-brokers and wants to open your demat account offline, you can perform all the formalities offline as well. In such a case, the account opening procedure is even quicker.
Open a Demat Account – Things to Remember
Here are some of the top considerations you need to keep in mind before you go ahead and understand how to open a demat account:
Your stockbroker can revise any charges levied on you by giving you a 30-day notice. You have the option to continue or switch to any other stockbroker.
There is no mandate from SEBI that you need to have a minimum share balance on your demat account.
The stockbroker cannot charge you for closing a demat account. This must be done for free.