Most trading platforms and brokerage firms offer a free trading and Demat account nowadays. No charges are levied for opening a Demat account to encourage online trading and investing. It is possible to open a Demat account online without submitting any physical documents. You just need to fill out an application form and submit the documents online. Even the document verification round can be completed online via a webcam or video conference.
What is a Demat Account?
Are you interested and want to know what a Demat account is? The Full form of a Demat account is a Dematerialised Account that holds your securities in digital form. It is mandatory to open a Demat account for trading in stocks or investing in IPOs. You can also invest in mutual funds, currencies, derivatives, Futures and Options, and other market segments if you own a Demat account.
Which documents are required to open a free Demat account?
Submitting a PAN card copy is mandatory with the application form. Also, submit any of these documents to validate your address, identity, and income:
- Address Proof: Ration Card, Aadhaar Card, Electricity Bills, Water Bills, etc.
- Income Proof: Salary slips or Form 16
- Identity Proof: Passport, Aadhaar Card, Voter ID, or any other government-approved ID with photograph.
Is everything free in a free Demat account?
Many brokers do not charge anything for letting investors open a Demat account. These facilities and a free Demat account have made share trading for beginners easy and uncomplicated. However, it does not mean that all the Demat services will be offered for free by a free Demat account. When you sell the shares, they get debited from your Demat account and the money gets transferred into your trading account in T+2 days. The broker will charge a transaction fee as per the applicable rate. Brokers don’t charge any transaction fee for buying shares these days.
You will also need to pay AMC (Account Maintenance Charges) and other fees for operating a Demat account. These charges vary for each broker. Some brokers may even waive off the AMC for the first year. Therefore, you must compare the fees charged by different brokers before opening a Demat account.
Advantages of having a Demat Account:
There are many advantages to having a Demat account. While opening a Demat account is compulsory for trading in the stock market, it is not required to invest in mutual funds or SIPs. However, most brokers provide the facility of investing in mutual funds through bulk investment or SIP to their users. Some of the key advantages of having a Demat account are listed below:
Secures your Holdings:
A Demat account offers protection to your securities as they are stored in electronic format in it. It also negates the need for any documents for completing the buy, sell, and transfer transactions.
Corporate actions like dividends, stock splits, bonus shares, etc. will be informed to you via your Demat account.
Investing in IPOs:
Investing in IPOs is easy through a Demat account. You can also book IPOs unofficially through a grey market. A grey market is a place where investors can buy or sell IPO applications or shares unofficially. It is an OTC (Over Counter) market which is not governed by SEBI regulations. Therefore, it is risky to invest in IPOs through the grey market.
It is better to invest in IPOs through a Demat account. You need to add funds into your trading account to book an IPO slot. If the IPO is not allotted to your account, the funds will be transferred back without any hassles. There is no such guarantee of refunds in a grey market as the money is invested on the basis of mutual trust.