What is a Demat Account?

 

Demat or Dematerialized account is an electronic account that stores the shares you buy through a stock exchange, such as NSE or BSE. In India, Demat accounts are maintained by Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL).

The concept came into existence in 1996 and has been the preferred mode of storing shares for investors since then. A Demat account takes away the pain of archiving physical share certificates. Investors can use a Demat account to store everything from equity shares and bonds to mutual funds, debt securities, and government securities. Demat account is mandatory in India to buy shares on delivery.  

Steps You Need to Buy Shares Through a Demat Account

Obtain a PAN Card

To buy shares and trade in the stock market, you need a Permanent Account Number (PAN). The Income Tax department oversees PAN card issuance. You can apply for a PAN card online or through an agent.

The Indian government has made it mandatory to quote the PAN number for making all financial transactions. PAN is a ten-digit alphanumeric number the government uses to track Indian citizens' tax liability. You become eligible to open a Demat account only after getting the PAN.

Open Demat Account and Online Trading Account

As previously said, Demat accounts are maintained and managed by CDSL and NSDL. To open a Demat and online trading account, you need to approach a Depository Participant (DP) or broker, such as 5paisa. 5paisa provides free Demat account opening for all eligible Indian investors. The broker facilitates smooth processing of Demat and trading account opening. As a fact, you can access your Demat account seamlessly through the broker. 

An online trading account allows you to buy or sell shares both online and through phone calls. If you buy shares online, you have to visit the broker's website or download its app from Google Playstore or Apple App Store. You can conveniently select the stocks you wish to purchase or sell and sell them during market hours. However, if you want to place orders through a phone call, you have to call the broker's trading helpdesk and place the order. Some brokers charge a nominal amount for placing orders over a phone call. The online order placing is free, though.

Link Your Bank Account

Just like the PAN, having a bank account is also important for share trading. If you do not have a bank account, it's high time you open one. Before investing your money in the stock market, you need to transfer the investment amount from your bank to the online trading account. Once you place a buy order, the shares get credited to your Demat account within two business days from the transaction date or T+2. Similarly, the money gets transferred to your trading or bank account within T+2 business days when you sell your holding.

Start Trading

Once your account gets ready, you can open the broker's online trading app, find the stocks you want to purchase and place a buy order. Stockbrokers generally provide a margin for buying shares over and above the available account balance. For example, if you have INR 10,000 in your account and your broker provides a margin of five times, you can buy shares worth INR 50,000

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