What is a demat account? Meaning, uses and how it works
A demat (dematerialised) account holds your shares, bonds and other securities in electronic form, just as a bank account holds your money. You need one to hold securities that you buy through the stock exchange.
Updated: · For education only. Not investment advice.
How a demat account works
When you buy shares through your trading account, the shares are credited to your demat account after settlement. When you sell, they are debited. The records are kept by a depository, NSDL or CDSL, and your broker or bank acts as a depository participant (DP) that opens and manages your account.
What you need to open one
You usually need documents such as PAN, address proof, bank account proof, a photograph and a signature, and you complete KYC (know your customer). Many brokers allow online opening. Before you choose a broker, check that it is registered with SEBI.
Demat, trading and bank account
A bank account holds money, a demat account holds securities, and a trading account is used to place buy and sell orders. To invest in shares through an exchange, you normally need all three to work together.
Charges to look at
Common charges are an account opening fee, an annual maintenance charge (AMC), a charge when securities are sold from the account (DP charges), and brokerage and statutory charges on trades. Charges differ by broker, so compare the charge sheet before you choose.
Common misunderstandings
- A demat account is the same as a trading account. They are different: one holds securities and the other places orders.
- Opening a demat account means you must invest straight away. You can keep it open without buying anything, although some providers may charge an annual fee.
- Sharing login details or OTPs for convenience is fine. Never share your password, OTP or PIN with anyone, and never sign blank delivery instruction slips.
Keep learning
Frequently asked questions
Can I have more than one demat account?
Yes. You can open demat accounts with more than one broker or bank, but each may have its own charges, so keep only the ones you need.
Is a demat account safe?
Securities in a demat account are held electronically with a depository, which removes risks such as loss or theft of paper certificates. You still need to protect your login details, turn on two-step verification and check your statements regularly.
Do I need a demat account for mutual funds?
Not for most mutual fund purchases. You can hold units in a statement of account with the fund house, or choose to hold them in demat form with your broker.
Sources and further reading
Investments in securities markets are subject to market risks. Read all related documents carefully before investing.