In fact, India crossed the 100-million mark in August 2022. It is worth noting that this number stood at 40.9 million before the pandemic. There are many reasons for this uptick, one of which is an easier Demat account opening process.
This accelerated increase in the number of Demat accounts also reflects the confidence of investors in the Indian stock market. A sluggish pandemic-stricken market may also be one of the reasons why many shifted to market-linked instruments.
For more insights about the rising popularity of Demat accounts, its meaning, and how to open an account, read on.
What is a Demat Account?
Before venturing into the trading aspect of the stock market, you need to understand the Demat account’s meaning. Also known as a dematerialised account, it is an instrument that stores your securities in an electronic format.
Opening a Demat account lets you store your securities and monitor your financial investments. According to SEBI, having a Demat account is mandatory if you wish to trade Indian securities.
The stocks or securities stored in your Demat account are called Demat holdings. To analyse the value of your stocks, you can download a Demat account holding statement.
Remember that you can open a Demat account only with a Depository Participant or DP. A DP acts as a mediator between depositories, such as the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), and investors and traders.
Consider a DP similar to a bank that stores your money and initiates transactions. In this case, the money is your securities. Hence, choosing the right DP is important as the cost associated with opening a Demat account differs across DPs.
You can download your Demat account holding statement directly from NSDL and CDSL depositories. Another option is to download the statement from your respective DP’s platform.
What are the Reasons Behind the Surge in the Number of Demat Accounts?
Undoubtedly, this huge number comes as a big surprise. With technological advancements in the financial vertical, opening a Demat account has become easy and streamlined. You are no longer required to visit the bank or brokerage branch physically.
In fact, you can open one instantly from the comfort of your home. All you need to do is start the process and submit the following documents to activate your Demat account:
- Your ID proof with your latest photograph (PAN card, Voter ID, etc.)
- Your address proof (Aadhar card, Driver’s license, etc.)
- Your bank account details (Statement of your bank account, cheque leaf, etc.)
- Your income proof (Latest ITR and bank statement for the last 6 months)
This is followed by e-verification, and then the account is activated. The increase in the number of Demat accounts may also be attributed to the low-interest rates prevailing in the market after COVID-19.
During the COVID-19 pandemic, savings accounts and fixed deposits had lower interest rates due to the economic climate at the time. Most banks slashed their FD rates below 6% p.a. on all FDs with a duration of more than one year.
This drastic decrease may have pushed investors to seek other suitable investment alternatives. Many individuals may have opened Demat accounts to tap into the stock market, rather than relying entirely on secure fixed-income avenues.
Despite the bearish market of 2020, it quickly picked up momentum and rebounded. This pointed toward opportunity, and many jumped at it, effectively doubling the number of Demat accounts.
One crucial fact to understand here is that an individual can open multiple Demat accounts with different brokers. All you require is a valid PAN card as the primary source of verification to open a Demat account.
That said, all these millions of Demat accounts may not be active or functional. With SEBI levying minimal limitations on them, these figures don’t necessarily mean that the number of investors has increased.
How to Open a Demat Account in India?
You can open a Demat account at any one of the central depositories, NSDL or CDSL. First of all, you need to identify a suitable DP.
Depending on where your DP is linked, your account will be governed by the concerned depository. Before opening an account, it helps to know if you can download the Demat account holding statement with ease. This is important because it contains key investing information and any difficulty in accessing this statement means you need to choose another DP.
Remember that the DP acts as an intermediary between the investor and the concerned depository. Identifying your DP forms the first and foremost step in opening a Demat account.
Research various options available in the market on the basis of account opening charges and annual maintenance charges, among others, before choosing a DP. Checking the number of services DPs offer also plays a crucial part when finalizing your stockbroker.
Once decided, fill out the account opening form accurately and submit it, along with KYC documentation. Make sure to open a trading account with a broker, as that lets you sell or purchase shares in the stock market.
Simply put, a trading account enables you to execute trades in the stock market. Without a Demat account, a trading account is of no use. Be aware of these parameters before you begin your investment journey.
After verification of the documents, you will get the required details such as the account number, ID, and password, DP identification code, and other related information. Once your account is active, you can start trading in the stock market.
With a better understanding of the Demat account’s meaning, you can contextualise the trend in India. Investing in the stock market can be lucrative, but you need a proper strategy to see long-term gains.
