Today, almost 90% of the transactions in the stock exchange market happens only through the demat mode. Unfortunately, many people are not familiar with this concept. If you too are a new investor or someone who has no knowledge about dematerialisation, you have come to the right place. In this article, we will discuss what a demat account is and how it can help you in buying and selling shares online
What is demat?
Demat or dematerialisation is the process of converting your physical certificates to electronic bookkeeping. Through this method all your actual stock certificates are removed and exchanged for electronic recording.
With the help of a demat account, investors can make electronic transaction as and when they like, with minimum or no paperwork. This has allowed for accounts to be updated swiftly and automatically.
Before you plan to buy shares online, there are a few things you should keep in mind. They are as follows-
Obtain a PAN Card
A PAN card is one of the most important documents needed for financial transactions across the country. It contains authentic details of the person, which is required before an account is opened in your name.
Open a demat account
To facilitate an easier means of buying and selling shares, open a demat account. You will have to fill up the forms and details required to open a demat account online. After scanning the relevant and attested documents, you will be eligible to open an account.
Soon after, you can start trading. To open a demat account you can have zero balance in your account. There is no compulsion to have a minimum balance to maintain your account either.
Consult a broker
If you are hesitant in the beginning to make transactions, it’s advisable to get yourself a broker. These individuals are certified by the SEBI board and have a valid licence. A broker is an intermediary between an independent share trader and a stock broking firm. Generally, he/she will charge a small commission to help the traders buy and sell shares.
Find a Depositary Participant
Depositary participants can be authorised banks, brokers or financial institutions, that offer demat services. There are two types of DPs in India; NSDL (National Securities Depositary limited) and CSDL (Central Securities Depositary limited). These DPs store the shares you hold by providing you with a unique account number as part of identification.
Make use of UIN
Unique Identification Number or UIN is mandatory for investors who make transactions with a capital of one lakh and above. UIN would not be needed for low key investors. Professional investors who make use of UIN, usually buy shares of high profile companies as they assure you better returns on investment of mediocre stocks.
Buy and sell shares
Typically this requires a lot of planning and strategizing. Your broker will be able to assist you, but you will have to close the final deal on your own. Make sure to do a lot of research and talk to experts before your make any transactions.
If you think you are ready to begin buying shares online, here are a few steps you should follow:
- Link your trading and demat accounts online. This way, you won’t have to provide your demat account details for every transaction.
- The exchange will then process your order. The details of your transactions will be verified amongst other things like availability of the shares in the market, the market place and so on. The details of your demat account linked to the trading account will also be checked.
- Place an order through your online trading account. It could be a market order, after-market order, a limit or buy order. You may have to supply your trading account details if your brokerage allows you to place orders over the phone.
- Once the order is processed, the shares will then be deposited in your demat account.
If you are new to this world, the best thing would be to take your time and do a thorough research.