Last Updated: Mar 21, 2024 Value Broking 5 Mins 1.7K

Since 1996, the Securities Exchange Board of India (SEBI) has pushed every investor to use a Demat account. You may be wondering now how the Demat account works? Demat accounts store various securities in the Dematerialized form. They can hold equity, government bonds, debentures, sovereign gold bonds, Exchange Traded Funds, Preference Shares, Treasury Bills, Commercial Papers, Certificates of Deposits, Capitals Gains & Tax-Free Bonds, mutual funds, etc.

How to Use a Demat Account for Trading?

Using a Demat account is simple. If you don’t have a Demat account, you can open one with a depository participant (DP), preferably a broker or sub-broker. For the complete utilization of your Demat account, you must also have a Trading account. All you need is a good internet connection once you open a Demat account and a trading account. Then you can start trading shares and other financial assets online.

What is the Process Behind How to Use a Demat Account?

Opening a Demat account is a short process that you can undertake. However, to first know how to use a Demat account and how the Demat account works well, let’s learn how to activate a Demat account. Here are the steps you can follow to know better how to activate a Demat account. 


You must choose the stockbroker or Sub-broker who will assist you in opening a Demat and Trading account. The stockbroker will help you open a Demat account in the depository of your choice.  However, before opening the account, you need to ensure that the stockbroker is DP or depository participant. A depository participant is an authorized member of the depositories. You will learn why the stockbroker should be a depository participant in the following point.

Choose a Depository

In India, you can choose from the two Depositories, i.e., National Securities Depositories Ltd. (NSDL) and the Central Depository Service Ltd. They are responsible for hosting and maintaining all Demat accounts. In addition, they ensure the safety of all your securities in the Demat account.

Fill a Form

Once you have chosen which depository you want to open your Demat account with, you can fill out the form provided by the stockbroker. You can get this form online by visiting the official website of the stockbroker. You will have to fill up the required details and submit a few documents like your Aadhaar card, PAN card, etc. And provide proof of identity and a proof of address. You are also required to link your bank account to your Demat account. You may have to either provide your bank account number or a canceled bank cheque. 

Complete KYC

After the above process, you will have to complete the KYC. It could be an in-person visit by a representative of the stockbroker, or it can get done via a video call and eKYC.

Get a Trading Account

To use your Demat account to the fullest, you’ll need a Trading account. Most stockbrokers provide a 2-1 facility where you can open a trading account while you’re opening a Demat account. If this doesn’t happen, you would have to open a trading account as well.

Once you open a Demat and Trading account, you can trade in the stock market, invest in mutual funds, or purchase bonds. However, the settlement period for all of these is T+2 which means that it will take two trading days from the day of the transaction for the shares to reflect in your Demat account. 

The same will happen if you choose to sell your shares, meaning it would take about two working days to sell your shares to receive the money. Shares are auto credited and debited whenever you trade in the Stock Market. Depositories like NSDL and CDSL also function like clearing houses ensuring all transactions are settled without any errors.

Most stockbrokers provide personalized services to help you use your Demat account to the fullest.


So now you may have understood why SEBI has been pushing every investor since 1996 to use a Demat account. The process for opening a Demat account is very simple, and trading shares online is very convenient and efficient compared to offline trading. Before the Demat accounts came into existence, the stockbroker had to physically go to the exchange and trade his shares. This was a long and tedious process, and it could take several days to get shares delivered to the investor. Once you had the shares in your possession, you had to handle them with great care, as any damage could lead to various problems. It was also difficult for regulatory bodies like SEBI to monitor trading activity because of which stockbrokers carried out illicit trading practices.

So are you now thinking of opening a Demat account with a depository participant? If yes, the following are a few more things to help you select a stockbroker. You should check and compare what the services and other benefits the stockbroker is offering are. Some brokers provide stock tips and advisory services and have different trading platforms and optimized applications for various devices. You should also assess the brokerage fee charged by the broker against the services they provide. After doing your research, if you conclude that the broker suits your needs and is reasonable, you can go ahead and open your Demat account with that broker.