A Demat account is where you can hold shares and other securities in an electronic i.e. digital form. The introduction of the Demat account has eliminated the risks and issues associated with physical shares. It can be considered as a bank account but instead of funds, you store shares in it.
However, there are several factors that you must understand thoroughly before opening or using a Demat account. Some of these key factors are mentioned below:
BDSA or Regular Demat account
You don’t have to open a regular Demat account if the size of your holdings is less than Rs. 2,00,000 as a BDSA i.e. Basic Services Demat Account would be enough to handle your trading activities.
On opting for BDSA, you will need to pay a nominal or no AMC (Account Maintenance Charges) depending on the value of your holdings. However, you will have to ensure that your holdings do not exceed Rs. 2 lakhs at any given point in time.
For example, if you have purchased shares of Rs. 1.2 lakhs and they appreciate to a value of Rs. 2.1 lakhs after a few days, then regular Demat charges will apply to your account.
While opening a Demat account, you need to check whether the DP you have selected provides efficient support services or not.
For instance, if the corporate actions don’t reflect in your account automatically then your DP must be able to handle it quickly. Therefore, pick a DP who responds to your queries, complaints, etc. immediately and takes the necessary actions to resolve them.
A robust platform for trading
Choose a broker who can provide access to your Demat and trading account via one platform. Also, the platform must be robust enough to transactions like crediting and debiting shares to the Demat account, transferring funds to the bank account, retrieving funds from the bank account to the trading account, etc. seamlessly.
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Demat charges & brokerage
Understanding what is Demat account is not sufficient as you also need to know the charges that are associated with it. For maintaining your Demat account, you will need to pay an Annual Maintenance Charge (AMC) to your DP. Also, whenever you sell your shares, the DP needs to pay an amount to the depository body (NSDL or CDSL) it is working with.
Moreover, a DP will also charge a nominal amount from you if you need transaction or holding statements, physical copies of your shares, duplicate statements, etc. Therefore, you need to analyze all these Demat charges before choosing a DP.
Apart from these charges, you will also need to pay brokerage in exchange for the services they provide. You can either opt for a traditional/full-service broker who provides a wide range of services and allows you to trade in various financial instruments along with prompt customer service and consultation services.
A full-service broker charges a high brokerage that is usually a set percentage of the profit that you make from each trade. You can even go for the discount brokers who charge a minimal brokerage for every trade. This means the brokerage charges will be the same for all the trades irrespective of the profit you earn from them. However, discount brokers offer limited investment options and you don’t get any advisory or support services as well.
A perfect option would be to subscribe to the services of a new-age discount broker who provides the flexibility of dealing in different instruments, and a modern trading platform that can handle your investment needs effectively. Also, your broker must charge a flat fee as a brokerage irrespective of the trade volume. Some brokers also provide subscription packages as per the instruments and services that you require to trade smoothly.