Part 7 - Demat Account Explained: Types, Documents Needed, and Opening Process
Part 7 - Demat Account Explained: Types, Documents Needed, and Opening Process
A Demat account (Dematerialized account) is an electronic account in India used to hold and trade securities like shares, mutual funds, bonds, and exchange-traded funds (ETFs) in digital form.
It eliminates physical share certificates, enabling secure, efficient, and paperless transactions.
Purpose:
Facilitates buying, selling, and holding securities on stock exchanges like BSE and NSE.
Operated By:
Managed by depositories—National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL)—through Depository Participants (DPs) such as banks or brokers
(e.g., Dhan,Zerodha, HDFC Securities).
Benefits:
Simplifies trading, reduces risks (e.g., loss/theft of certificates), and ensures quick transfers.
Types of Demat Accounts -
Demat accounts in India are categorized based on user needs, including the HUF account:
Regular Demat Account:
For: Resident Indian individuals.
Features: Standard account for trading equities, mutual funds, bonds, or ETFs, linked to a trading account.
Use Case: Retail investors trading on BSE/NSE.
Hindu Undivided Family (HUF) Demat Account:
For: Hindu Undivided Families, a legal entity under Hindu law (includes karta and coparceners).
Features: Managed by the karta, holds family investments separately. Requires HUF PAN and bank account.
Use Case: Family wealth management with tax benefits (e.g., under Section 80C).
Repatriable Demat Account:
For: Non-Resident Indians (NRIs) repatriating funds abroad.
Features: Linked to an NRE bank account, allows overseas fund transfers per RBI rules.
Use Case: NRIs investing with repatriation needs.
Non-Repatriable Demat Account:
For: NRIs without repatriation needs.
Features: Linked to an NRO bank account, restricts overseas transfers.
Use Case: NRIs holding local investments.
Basic Services -
Demat Account (BSDA):
For: Small resident Indian investors.
Features:
Lower fees if holdings are below ₹2 lakh; one account per individual.
Use Case:
Cost-effective for beginners.
Corporate Demat Account:
For: Companies, trusts, or institutions.
Features: Holds corporate securities, requires compliance documents.
Use Case: Business investments or treasury management.
Minor Demat Account:
For: Individuals under 18, managed by a guardian.
Features: Restricted to safe securities (e.g., no derivatives); converts to regular account at 18.
Use Case: Early investments for children
Differences Between Demat and Trading Accounts
Purpose:
A Demat account is designed to hold and store securities like shares, mutual funds, bonds, and ETFs in electronic form, acting as a digital vault. In contrast, a trading account is used to place buy or sell orders for these securities on stock exchanges like BSE or NSE, serving as the platform for executing trades.
Function:
The Demat account stores securities after they are purchased or before they are sold, ensuring safe custody and easy transfer. The trading account facilitates the actual trading process, allowing investors to execute orders such as buying or selling shares or derivatives.
Usage:
A Demat account is used to hold securities post-purchase, for example, storing 100 Reliance shares after a trade, or to transfer them during a sale. A trading account is used to place the order to buy or sell those 100 Reliance shares, interacting directly with the exchange.
Linked Accounts:
Both accounts are linked to each other and to a bank account for seamless transactions. The Demat account connects to the trading account to credit or debit securities, while the trading account links to the bank account for funding trades and receiving proceeds.
Example of Operation:
If you buy 50 Infosys shares, the trading account places the buy order on the exchange, and once executed, the shares are credited to your Demat account. When selling, the trading account places the sell order, and the Demat account debits the shares.
Operated By:
A Demat account is managed by depositories (NSDL or CDSL) through Depository Participants (DPs) like banks or brokers. A trading account is provided by brokers registered with stock exchanges, such as Zerodha or HDFC Securities.
Necessity for Trading:
A Demat account is mandatory to hold securities after a trade, ensuring they are stored electronically. A trading account is essential to execute trades on the stock exchange, as you cannot buy or sell without it.
Charges:
A Demat account incurs Annual Maintenance Charges (AMC), typically ₹0–₹500 (free for BSDA if holdings are below ₹50,000), plus transaction fees (e.g., ₹0.03% for CDSL). A trading account involves brokerage fees per trade (e.g., ₹10–₹25 or percentage-based) but typically has no AMC.
How to Open a Demat and Trading Account (Two-in-One)
Opening a Demat and trading account (typically as a two-in-one account) is a streamlined process in India, often completed online via e-KYC as of June 2025. Here’s the step-by-step process:
Choose a Depository Participant (DP) and Broker:
Select a DP/broker (e.g., Zerodha, Groww, HDFC Securities) offering a two-in-one account.
Compare fees, platform usability, and support. Ensure DP is registered with NSDL/CDSL and broker with BSE/NSE.
Fill the Application Form:
Access the DP/broker’s website or app and complete the online form for both Demat and trading accounts.
Provide personal details (name, address, contact), PAN, bank account details, and specify account type (e.g., Regular, HUF, BSDA).
Submit Documents:
Upload scanned copies of required documents (listed below).
Use Aadhaar-based e-KYC for instant verification via OTP.
In-Person Verification (IPV):
Complete IPV via video call or webcam, showing your face and documents.
IPV may be waived with seamless e-KYC.
Sign the Agreement:
E-sign the DP-client agreement (for Demat) and broker-client agreement (for trading), outlining rights, obligations, and fees.
A Power of Attorney (POA) may be required to authorize transactions.
Account Activation:
The DP/broker verifies documents and processes the application (1–3 days).
Receive a Client ID and DP ID (Demat) and a Trading Account ID.
Link both accounts to a bank account for fund transfers.
Online Process (Preferred)
Choose a Broker/DP
Example:Dhan , Zerodha,
Visit Their Website or Download App
Click on “Open Demat Account” or “Sign Up”.
Enter PAN and Mobile Number
OTP verification done.
Upload Documents
PAN, Aadhaar (with eSign), and other KYC docs (see below).
Record IPV (In-Person Verification)
Selfie video or live verification via app/webcam.
Sign Digitally (eSign)
Using Aadhaar-linked mobile number via OTP.
Account Activated
In 24–48 hours, you receive your Client ID, login credentials, and you’re ready to trade.
Start Trading:
Fund the trading account, log into the broker’s platform, and begin trading. Securities bought are credited to the Demat account.
Documents Required -
Documents ensure compliance with SEBI and KYC norms, with digital submission standard in 2025. Requirements are similar for Demat and trading accounts, as they’re often opened together:
Identity Proof (any one):
PAN card (mandatory for both accounts).
Aadhaar card (preferred for e-KYC).
Passport, Voter ID, or Driving License.
Address Proof (any one):
Aadhaar card (if not used for identity).
Passport, Voter ID, Driving License, or Utility bill (electricity/gas, not older than 3 months).
Bank statement/passbook (with address, not older than 3 months).
Bank Proof:
Cancelled cheque or bank statement/passbook (showing account number, IFSC, name).
Links both accounts to the bank for funds and dividend transfers.
Photograph:
Recent passport-size photograph (digital upload).
Income Proof (optional, for derivatives trading):
ITR acknowledgment, Form 16, or bank statement (required for futures/options).
Additional Documents by Account Type:
HUF Demat Account:
HUF PAN card (separate from karta’s PAN).
HUF bank account details (cancelled cheque/statement).
List of coparceners and karta’s details.
HUF declaration signed by the karta.
NRI Accounts:
Passport, visa, NRE/NRO bank account details.
FATCA declaration.
Corporate Accounts:
Company PAN, Certificate of Incorporation, Memorandum of Association.
Board Resolution, authorized signatory details.
Minor Accounts:
Birth certificate, guardian’s KYC documents.
Note: Aadhaar e-KYC simplifies submission; non-Aadhaar KYC may require attested physical copies for offline processes.
Additional Details
Costs Involved:
Account Opening Fee: Often free with discount brokers (e.g., Zerodha, Groww); ₹200–₹1,000 for banks for two-in-one accounts.
Demat AMC: ₹0–₹500 for Regular/HUF; ₹0 for BSDA (holdings < ₹50,000) or ₹100 (< ₹2 lakh).
Trading Account Fees: Brokerage of ₹10–₹25 per trade (flat or %); no AMC typically.
Depository Fees: ₹0.03% per transaction (e.g., CDSL charges).
Time Taken: Online e-KYC processes take 1–2 days; offline/non-Aadhaar KYC may take 3–7 days.
Key Considerations:
Two-in-One Account: Most brokers bundle Demat and trading accounts for convenience. Ensure the platform supports both seamlessly.
HUF Accounts: Require separate HUF PAN and bank account; only the karta operates, with tax benefits under HUF tax laws.
Broker Choice: Opt for low brokerage (e.g., Zerodha’s ₹20/trade) and user-friendly apps. Check for hidden fees.
NRI Accounts: Comply with RBI rules for repatriation; specify NRE/NRO linkage.
Trading Segments:
Confirm if the trading account supports equity, derivatives, or commodities, as requirements differ.
Regulatory Oversight:
SEBI regulates DPs and brokers, with NSDL/CDSL managing depositories.
India has over 20 crore Demat accounts as of June 2025, driven by retail participation.
Key Insights -
Demat vs. Trading:
Demat accounts store securities; trading accounts execute trades. A two-in-one account combines both for seamless investing, offered by most brokers.
HUF Demat Account:
Enables family investments under a single entity, managed by the karta, with specific documentation (HUF PAN, bank details) and tax advantages.
Other Types:
Regular, BSDA, NRI (Repatriable/Non-Repatriable), Corporate, and Minor accounts cater to diverse needs.
Opening Process:
Simplified via e-KYC, requiring identity, address, bank proofs, and account-specific documents. Two-in-one accounts streamline setup.
Accessibility:
Digital platforms (e.g., Zerodha, Groww) and e-KYC have boosted retail investing, with two-in-one accounts enhancing user experience.
For further details, visit nsdl.co.in, cdslindia.com, or sebi.gov.in.
If you need specific guidance (e.g., HUF account benefits, broker comparisons), let me know!
