A Demat account or a Dematerialized Account holds financial assets like stocks or bonds electronically. This is very similar to having a trading account. It is a commonly used account type in India. This allows the account holder to trade on their own for the most part, but it isn’t common in the U.S. or Europe.
However, you cannot trade with a Demat account. You simply hold your assets on a Demat account and trade with a trading account to sell and buy shares. Assume you bought 5 shares of Tesla, it will be held in your Demat account, not trading account.
Instead of using a Demat account, letting a broker hold your assets on your behalf is a lot more convenient and makes trading simple. The only downside to this is—depending on the brokerage firm you’re working with—the risk of broker becoming uncooperative with the trading account. Since there are many reliable U.S. based brokerage firms, Americans don’t necessarily need a Demat account. The overall purpose of a Demat account is the hold assets, not trade.
Opening a Demat Account in India
Anyone who’s over 18 can open a Demat. There is no difference between opening any other type of bank account and a Demat account. Simply, select where you want to open your Demat account and select the Depository Participant to go along with it.
Although you can open up a Demat account online, you will eventually need to go to the financial institution you’re opening the account with. So we suggest just going there and finishing everything all at once.
After you decide which Depository Participant you want to open Demat account with, you will need a
- PAN Card
- A passport-sized photograph
- Required documents (contact your DP)
Once the application is processed, you will be contacted by the DP to review the information provided on your application form. After your information is validated and everything is approved, you will be given a Demat account number and a client ID. You will use these to have access to your Demat account online.
Note that there are some fees that come along with having a Demat account. This includes multiple fees such as an annual maintenance fee. This fee can be anywhere between Rs 100 (roughly $1.3) to Rs 750 (roughly $10).