demat account helps store multiple securities in one location in Dematerialized form. Dematerialization simply means converting a Security from a physical form to an electronic form.
Trading in the Stock Market requires investors to have a Trading Account and demat account. After buying shares using a Trading account, they will be automatically stored in the Demat account. On selling shares using the Trading account, they will automatically be debited from your Demat account.
You can open an online Demat account by following four simple steps.
Choose a Depository Participant (DP) that allows you to open demat account in the Depository you want.
Fill out demat account opening form where you have to provide your name, address, date of birth, email ID, and phone number, along with attaching your photo.
Submit required documents such as ID Proof, Address Proof, and Income Proof for verifying your identity.
Go through a verification process. Once verification is completed successfully, you will get your Demat account credentials.
With the emergence of technology and the Internet, it has become easy for people to invest and trade their money in the Stock Market. You do not need to visit any financial institutions to request trading; all you need is to open demat account. It is convenient for opening demat account online within a few clicks. It is also a very safe and secured procedure.
All India’s Depository Participants [DPs] are registered under either NSDL or CDSL. A Depository Participant (DP) bridges the gap between a Depository and an investor. A DP helps investors open their Demat accounts on any National Depositories through their platform. They allow investors to trade in the Stock Market through their platform and handle the transfer process of investors’ Securities and funds.
They provide the standard profit and loss statements regularly. Each DP provides its own set of services, and investors are free to compare and select the Depository Participant (DP) of their choice. If you are a new investor, you should be aware of Depositories in India. Such depositories are connected with every investor through Depository Participants.
It is up to the investor to decide whether they want to open demat account with Central Securities Depository Ltd [CSDL] or National Securities Depository Ltd [NDSL]. Both CDSL and NDSL provide the same benefits to the individual; the only difference between them is the market in which they operate. CDSL primarily operates the Bombay Stock Exchange [BSE], while NSDL operates [NSE]. You can open a free Demat account on such Depositories. Only you need to find out the depository participant offering free Demat account opening.
To open demat account, visit the respective platform where you have to provide your name, address, date of birth, email ID, and phone number. Kindly ensure that all the information you mention in the form is accurate. It is a must to review the form and sign it digitally.
A nominee is a person who inherits all the shares and funds of the Demat account holder when the owner of the Demat account passes away. The nominee can be anyone of your choice, but you cannot name non-individual entities like corporate, trust, etc., as your nominee.
One of the most basic requirements for adding a nominee is linking your Adhar card to your active mobile number. The Demat account holder needs to provide the ID proof of the nominee along with the nomination form. And if the nominee is underage, then you will also have to provide information about the guardian of the nominee.
You can also submit a Passport, Voter id, or other required documents, but make sure that the document you submit for your nominee is not expired.
You must submit your Bank details for the Demat account opening. You need to give the basic information about your Bank account, like your Bank account number and IFSC code, an alpha-numeric code of 11 digits. Avoid sharing your Bank account details with others. If you have selected your Broker after knowing their background, your Bank account details are safe with them.
In the Demat account opening process, it is a must that an investor signs a Power of Attorney that allows their Depository Participant (DP) to debit the shares from their Demat account whenever the investor sells their Securities in the Stock market. However, the Power of Attorney does not give the Depository Participant (DP) complete control of the investor's Demat account; it just grants them limited access.
KYC stands for "Know your Customer or Client." It is a standard guideline to save a financial institution from fraud. If you wish to open demat account, kindly submit all the KYC-required documents, such as your Identity proof, Address proof, Income proof, Bank account details, etc., to help your Demat account provider recognize you as a genuine investor by verifying your identity.
The verification process is one of the most crucial steps in opening a free Demat account online, or you are paying for it. To receive your Demat account credentials, you will have to go through the verification process, which can get done online and offline. Some Demat account providers will conduct online verification, while others will conduct in-person investor verification.
The requirements for the verification process can be different for every other Demat account provider, but once you are through with this process, you will receive your Demat account credentials.
Provide all your basic details such as name, address, date of birth, email ID, and phone number. You
must
attach your photo and sign it.
You can provide ID proof of the nominee as requested by the firm.
By submitting a power of attorney (PoA), you provide legal authority to the broker to act on your
behalf
based on the terms and conditions specified in the document.
Provide your cancelled cheque so that they will be able to deduct the amount from your Bank account
for account opening fees and brokerage charges.
To be a KYC-complaint, you must provide ID Proof, Address Proof, and Income Proof.
After filling out all the forms, courier them to the Depository Participant’s nearby registered
branch
office.
Once the registered office receives all your documents, they verify them. After this verification
process
is successful, you will receive your Demat account credentials.
If opening demat account online is difficult for you, you can choose an offline process.
Visit the head office or the nearest office of the Demat account provider you have chosen and take the Demat account opening form. Fill in all the details mentioned in the form, such as your name, residential address, date of birth, email ID, and phone number.
Attach your passport-sized photograph to the form, and sign it. When the form is filled, take it to the office of your Demat account provider and submit it there. Some providers may allow you to download the Demat account opening form online from their website and then submit a Hard copy of it.
Suppose any unexpected situation happens to you, and you already have a nominee for your Demat account. In that case, you can be confident that they will be able to claim the Securities you have in your Demat account without facing much trouble. So you will have to submit the nomination form to appoint a nominee where you have to fill in your details and the nominees' details.
You will also have to provide the Identity proof of the nominee. You can visit the website of your Demat account provider or directly visit their office to get the nomination form.
If the nominee is underage, you will also have to give the details of the nominee's guardian.
You can take the Hard copy of the Power of Attorney form from your Demat account provider, sign it, and then submit it to them. This Power of Attorney will allow your DP limited access to your Demat account through which they will be able to debit the Securities from your Demat account whenever you sell them in the Stock market.
The Bank details are crucial for the Demat account opening process. You will have to give your bank details to your Demat account provider, from where they will be able to deduct the brokerage charges and the account opening fees without causing you trouble with Physical cash.
You can submit the cancelled cheque of your active Bank account, which includes information like your IFSC code, Bank account number, the account holder’s name, etc., to your provider.
Know your customer or client [KYC] is a method of protecting financial institutions from various types of capital fraud. You’ll have to submit all the requested details to your Demat account provider in this process. Here are the following documents:
You will have to submit a Hard copy of all these documents to your Demat account provider, which will ultimately help them identify you as a genuine investor.
The offline method to open demat account may seem more hectic than the online method, but some investors find it more convenient than the online method. As you have already noted, in the offline mode to open demat account, you will have to fill out all the forms and courier them to a nearby registered branch office of the depository participant (DP). Always ensure that all of the documents you are submitting are appropriately filled out with accurate information, and none of them has expired.
Once the registered office receives your documents, they will verify whether you have the correct documents and accurate information about yourself. m. Make sure to present valid documents and accurate information about yourself. You may even call for an in-person verification [IPV], where your Broker personally verifies you and your documents. If the verification process is successful, you will receive all your Demat account credentials.
Note:You have to download an Account opening form, Nomination form, Power of Attorney form, & KYC form from the respective Depository Participant (DP) and print out all the forms
You can visit the registered office and ask them to complete the documentation process on your behalf.
Mentioned below are the benefits of demat account.
There were various risks associated with physical shares early. After the advent of Dematerialization, various risks get eliminated during postage. Such risks are like loss and damage of shares. The chance of theft and forgery to Securities has also ended. Now it's completely safe and secure to store and transfer your Securities with demat account.
Demat accounts store various Securities such as Equity, Government Bonds, Debentures, Sovereign Gold Bond, Exchange Traded Funds, Preference Shares, Treasury bills, Commercial Papers, Certificates of Deposits, Capitals Gains & Tax-Free Bonds, Mutual Funds, etc. It’s a one-stop place to keep all your Securities. You can manage all your Securities easily under the same roof. You can store and transfer your securities within a few clicks.
Initially, it was difficult to buy a random number of physical shares. You could only purchase a fixed number of physical shares as it was easy to issue. With the help of demat account, you can easily purchase any number of shares. There are no minimum or maximum requirements that you need to fulfil. If you choose to purchase a large number of shares, let's say 100 or 100+, there’s no requirement for you to purchase shares multiple times. After you purchase, they will be automatically deposited in your Demat account.
There were various charges associated with issuing physical Securities like Stamp Duty, Handling charges, Postage and transportation costs, Paperwork Charges, etc. These charges aren’t that huge, but if you carry out multiple trades, these charges could add up and eat up a significant portion of your returns. With the incorporation of the Demat account system, these charges have been reduced significantly. You don’t have to pay for handling and postage charges. Apart from this, any charges related to paperwork get entirely eradicated, and all you have to pay is a small percentage as a Stamp Duty Charge. As compared to Physical trading, Online trading is affordable.
Initially, the settlement duration was approximately 14 days. So it was a long and tedious process for one to receive shares after placing an order or money after selling your Demat account providers and shares. Now, the duration has come down to about two days. You can buy a sell, especially immediately, and you receive the shares or the money as per your respective order within a short time. It saves investors a lot of time, primarily when liquidating their assets.
Due to digitization, there’s no necessity for posting shares to the new owner. There is an easy transfer of shares when buying or selling with the help of Delivery Instruction Slip (DIS) or Receipt Instruction Slip (RIS). There will be an automatic debit or credit after placing an order for buying or selling.
Dematerialisation is how shares are converted from Physical to Digital form. With the Depository Participants (DP), the process of Dematerialisation is pretty fast. Rematerialization is the process of converting Securities from Digital to Physical form. It’s a great option if you choose to close your Demat account.
Various lenders in India provide loans on your financial assets that you kept in your Demat account as collateral. You could be eligible to get a loan for about 80-85% of the total value of your investment portfolio. It’s a great way of getting loans if you ever need them during any emergency.
You can access your Demat account from multiple platforms. You can use your Mobile phone, Laptop, Personal computer, or any other smart device that has a web browser on it.
Speed e-Facility helps faster transactions because there is a quick requirement for the security instructions to get delivered to the broker's account after its sale.
Any action taken by the company, like issuing dividends or refunds, is reflected in a short period with a quick notification. Actions like splitting shares or issuing bonus shares are also selected automatically in your Demat account. You need to go through no extra process to receive the extra shares.
Document submission is the most crucial stage of opening demat account. An individual who wants to be a stock market investor and share trader needs to submit all the required documents to move ahead with opening demat account. Since it is mandatory for the process, they must submit their documents to the organization or demat account provider they have chosen to open demat account with. The type of Demat account you are opening does not affect the necessity of the documents.
Because it is compulsory for the process, the aspiring investor will always need to present their documents before their organization or their Demat account provider. For instance, if you're planning to open a free Demat account online or offline, or even paying to open it by verifying the customer’s identity, in both cases, the demand for the documents will not be compromised by your Demat account provider.
The number of documents required from an individual can change from one Demat account provider to another, but at the same time, some standard documents are always needed.
KYC (Know Your Customers/Clients) is a standard requirement or a guideline designed to protect financial institutions from fraud, terror financing, or money laundering. IKYC is one of the critical requirements to open a Trading or Demat account with your broker. It is also easy to trace the flow of funds because of KYC.
Although other documents, including proof of identity, proof of address, proof of income, and proof of bank account, are required, your PAN card is mandatory.
The following documents you can submit as your identity proof:
a. Driving License; b. Voter ID card; c. Unique Identification Number (UID)Proof of address is required to verify the residential house of the client in India. The following documents can be submitted as proof of address:
a. the Voter ID Card; b. a New Electricity bill; c. the Passport; d. the Aadhar Card; e. the PAN CardSubmit a copy of your ITR Acknowledgement, etc., to verify your income and determine whether you can pay. It is necessary to trade in derivatives like futures and options (F and Os). You can submit the following documents as your proof of income:
You have to submit a cancelled cheque to provide your bank details, such as the bank account holder’s name, Bank account number, and your IFSC code to confirm whether you have your own Bank account, which is required for transactions.
It is one of the most critical documents for opening demat account. Since the people of India require to have their PAN card to carry out all financial transactions in India. The Securities and Exchange Board of India [SEBI] made it mandatory to provide an original PAN card when opening demat account.
In conclusion, if you wish to be an investor or trader in the stock market, you will need a Demat account, as it holds your shares and other securities that you purchase from the Stock market.
While submitting documents for opening demat account, you have to ensure that none of them has crossed their expiry date and that they are all valid and appropriate for the submission.
A Demat is where you can buy securities from the market and keep it safe. It provides a properly authorized system for your financial assets. Opening demat account gives investors and traders many opportunities that are as follows:
An IPO stands for Initial Public Offering (IPO), a way for institutional investors and retail investors to gain profits. A private company goes public by offering its shares for sale through an IPO in the stock market. The IPO allotment allows the private company to raise colossal capital for expanding their business. You can buy shares at a lower price through an IPO. And when the company progresses with time, the price will be much higher than the listed price.
Ultimately, you can make significant profits. IPOs provide a golden opportunity for small traders and beginners who are willing to get a fair chance of making early bids and profits. IPOs are safer and more professional as they have to follow the norms and regulations set by SEBI.
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A Mutual Fund is one of the easiest ways to invest money. You can invest any amount for any duration to make good returns. A mutual fund investment provides higher liquidity than other investments.
You can get significant returns through long-term Mutual Funds. There are many types of mutual funds schemes available in the market. Professional fund managers manage and track these funds to ensure profits for investors.
There are different types of Mutual funds under different categories. You can invest in Mutual Funds through a SIP or lump sum way. Every Mutual Fund scheme is well-regulated and functions in the interest of the investors.
Equity is multiple shares of a company’s ownership. When an investor buys the shares of a company, they will become a partial owner of the company. The equity of the company is in a volatile state. Every day, the equity rate fluctuates from high to low or vice versa. Investors tend to profit or lose depending upon the market condition. A small amount of equity can grow to a good price value over time.
Equity has the potential to gain returns to tackle inflation. Another good part of Equity is that the company offers a dividend income to its Equity holders out of its profits. The rate of dividend varies for different companies. You can invest in any company sector that you think will make a good return in the future.
Futures & Options (F&Os) are contract-based trading. Their value depends upon the underlying assets such as stocks, commodities, etc. For investing in F&Os, you must be aware of the underlying assets. You may benefit from Gold Futures and Options because of their price fluctuations. The Commodity F & O takes place in India's MCX and NCDEX markets.
To trade in an F&O, you need to approve an F&O trading account with your broker. In Futures trading, the trader pays a margin, which is like a down payment on its full value. The buyer needs to pay a premium to the writer or seller of the contract in an Option contract.
Currency trading is also called forex trading. Forex trading is performed to get profit in the fluctuation of different currencies. Forex trading is globalized with Tokyo, New York, and Paris markets. The most beneficial factor of these markets is availability, as the forex market functions 24 hours a day. As the currency bidding takes place, the financial asset currency is termed one of the most secure financial assets. One can easily earn a profit, and the idea of forex trading is easy for beginners.
Regarding liquidity, currency trading is also best as the currency is an asset that can easily get used for any transaction. One can achieve the ultimate goal of profit in forex trading by buying a pair of current types at a low price and selling in profit depending upon the state of the market.
Commodity trading includes the trading price of metals, energy, oils, and other raw materials. Trading commodities works in future contracts, D-mat form, and mining stocks. Commodity trading is an important factor in the stock market as it is the raw material index and all other companies require Raw materials for the production of any goods.
Rising the prices of commodities means a rise in the price of production, which will significantly decrease the price of shares and result in the loss of shares. Many investors invest in commodities to profit and protect their capital from inflation. Any event like a riot or climate disruption can result in heavy loss; investing in the commodity will stem losses in your financial portfolio.
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Digital Gold is the new way of investing in gold. People don't need to secure anything, unlike physical gold. Digital Gold is legit and 24K purity gold. The purity of gold is certified by government-licensed agencies, so you need to worry about any chance of fraud or loss in buying Digital Gold. You can also keep digital gold as collateral for loans from banks or other financial firms. Another Gold investment that you must know about is the Gold funds, a mutual fund that invests directly into gold reserves. These mutual funds invest in the stock of mining companies.
It is a convenient investment as these investments work around the price of the gold and rice in the gold price, resulting in profit for these mutual funds. Gold mutual funds are a brilliant way to diversify your financial portfolio and reduce risk from equity-based assets. You can also invest in SIPs that require investors to make a discipline of investing every month and make a long or short-term goal of saving and growing your money through gold mutual funds.
An IPO stands for Initial Public Offering (IPO), a way for institutional investors and retail investors to gain profits. A private company goes public by offering its shares for sale through an IPO in the stock market. The IPO allotment allows the private company to raise colossal capital for expanding their business. You can buy shares at a lower price through an IPO. And when the company progresses with time, the price will be much higher than the listed price.
Ultimately, you can make significant profits. IPOs provide a golden opportunity for small traders and beginners who are willing to get a fair chance of making early bids and profits. IPOs are safer and more professional as they have to follow the norms and regulations set by SEBI.
A Mutual Fund is one of the easiest ways to invest money. You can invest any amount for any duration to make good returns. A mutual fund investment provides higher liquidity than other investments.
You can get significant returns through long-term Mutual Funds. There are many types of mutual funds schemes available in the market. Professional fund managers manage and track these funds to ensure profits for investors.
There are different types of Mutual funds under different categories. You can invest in Mutual Funds through a SIP or lump sum way. Every Mutual Fund scheme is well-regulated and functions in the interest of the investors.
Equity is multiple shares of a company’s ownership. When an investor buys the shares of a company, they will become a partial owner of the company. The equity of the company is in a volatile state. Every day, the equity rate fluctuates from high to low or vice versa. Investors tend to profit or lose depending upon the market condition. A small amount of equity can grow to a good price value over time.
Equity has the potential to gain returns to tackle inflation. Another good part of Equity is that the company offers a dividend income to its Equity holders out of its profits. The rate of dividend varies for different companies. You can invest in any company sector that you think will make a good return in the future.
Futures & Options (F&Os) are contract-based trading. Their value depends upon the underlying assets such as stocks, commodities, etc. For investing in F&Os, you must be aware of the underlying assets. You may benefit from Gold Futures and Options because of their price fluctuations. The Commodity F & O takes place in India's MCX and NCDEX markets.
To trade in an F&O, you need to approve an F&O trading account with your broker. In Futures trading, the trader pays a margin, which is like a down payment on its full value. The buyer needs to pay a premium to the writer or seller of the contract in an Option contract.
Currency trading is also called forex trading. Forex trading is performed to get profit in the fluctuation of different currencies. Forex trading is globalized with Tokyo, New York, and Paris markets. The most beneficial factor of these markets is availability, as the forex market functions 24 hours a day. As the currency bidding takes place, the financial asset currency is termed one of the most secure financial assets. One can easily earn a profit, and the idea of forex trading is easy for beginners.
Regarding liquidity, currency trading is also best as the currency is an asset that can easily get used for any transaction. One can achieve the ultimate goal of profit in forex trading by buying a pair of current types at a low price and selling in profit depending upon the state of the market.
Commodity trading includes the trading price of metals, energy, oils, and other raw materials. Trading commodities works in future contracts, D-mat form, and mining stocks. Commodity trading is an important factor in the stock market as it is the raw material index and all other companies require Raw materials for the production of any goods.
Rising the prices of commodities means a rise in the price of production, which will significantly decrease the price of shares and result in the loss of shares. Many investors invest in commodities to profit and protect their capital from inflation. Any event like a riot or climate disruption can result in heavy loss; investing in the commodity will stem losses in your financial portfolio.
Digital Gold is the new way of investing in gold. People don't need to secure anything, unlike physical gold. Digital Gold is legit and 24K purity gold. The purity of gold is certified by government-licensed agencies, so you need to worry about any chance of fraud or loss in buying Digital Gold. You can also keep digital gold as collateral for loans from banks or other financial firms. Another Gold investment that you must know about is the Gold funds, a mutual fund that invests directly into gold reserves. These mutual funds invest in the stock of mining companies.
It is a convenient investment as these investments work around the price of the gold and rice in the gold price, resulting in profit for these mutual funds. Gold mutual funds are a brilliant way to diversify your financial portfolio and reduce risk from equity-based assets. You can also invest in SIPs that require investors to make a discipline of investing every month and make a long or short-term goal of saving and growing your money through gold mutual funds.
| Sr. No | Brokers | Online | Offline |
|---|---|---|---|
| 1 | Zerodha | yes | yes |
| 2 | Angel One | yes | yes |
| 3 | Kotak Securities | yes | yes |
| 4 | Upstox | yes | yes |
| 5 | Groww | yes | yes |
| 6 | ICICI Direct | yes | yes |
| 7 | Sharekhan | yes | yes |
| 8 | Motilal Oswal | yes | yes |
| 9 | HDFC Securities | yes | yes |
| 10 | IIFL Securities | yes | yes |
| Sr. No | Brokers | Account Opening Fee | Brokerage Charges |
|---|---|---|---|
| 1 | Zerodha | Rs. 200 online and Rs. 400 offline account opening. |
|
| 2 | Angel One | Free Account Opening |
|
| 3 | Kotak Securities | Free Account Opening |
|
| 4 | Upstox | Rs. 249 for an account opening |
|
| 5 | Groww | Free Account Opening |
|
| 6 | ICICI Direct | Free Account Opening |
|
| 7 | Sharekhan | Free Account Opening |
|
| 8 | Motilal Oswal | Free Account Opening |
|
| 9 | HDFC Securities | Free Account Opening |
|
| 10 | IIFL Securities | Free Account Opening |
|
Dematerialization is the process of converting physical shares into electronic forms. Initially, everyone preferred having their securities noted on a paper, ensuring their record is in safe storage. That was when the paper was the only option to keep records. They could be easily carried around and stored in a safe location. The only significant drawbacks faced were that the paper would degrade over time, and robbers could steal them.
The dematerialization of securities is a great way to combat all the drawbacks that paper certificates have. Securities stored in Demat accounts in the Dematerialized form will be there forever without Rotting away or losing any information.
Depositories follow the Securities and Exchange Board of India (SEBI) to ensure the safety of your shares and other securities. You also have to ensure that you don't share your details with others.
BO ID plays a crucial role in ensuring only you have complete access to your Demat account.
A Beneficial Owner (BO) ID is a unique number assigned to every Demat account holder. CDSL provides a 16-digit BO ID, while NSDL provides a 14-digit BO ID.
The first eight digits are fixed for all investors with the same depository participant (DP). Since they represent your depository participant identification (DP ID), each DP has a unique number assigned by the depository, which can be either numeric or an alphanumeric code.
The remaining eight-digit number is unique to every investor. Since they indicate the customer’s ID, the initial IN732568 represents your brokerage firm's ID, while the last number 92155883 represents your customer ID. The BO ID is unique to every Demat accountḍ holder. When you open demat account with any DP, you receive a welcome letter from the depository. Apart from Greeting and Thank You, this welcome letter contains information about the account holder and their account. Along with your basic details, you will get your BO ID. If you misplace this welcome letter due to any issue from your end, you must not worry. You can get it with the help of your credentials, as your BO ID is unique to you. Otherwise, you must contact your depository participant (DP), and they will help you out with your BO ID.
The Demat account changed the way trading is performed all over the world. Just like the invention of the Internet changed the face of communication. It is essential to understand India's trading history to know the history of Demat accounts in India.
Trading and the way shares are stored improved drastically over the past two decades. Carrying out trades was possible through physical presence at the initial stage. An investor would contact his stockbroker and inform them about the shares they want to purchase or sell. And the stockbroker would proceed further as per their requirements. The stockbroker or trader had to be present at the exchange to make trades on the investors’ behalf. It would take almost 14 days for this settlement process.
Investors and traders used to get physical share certificates as ownership proof. They had to store their shares and other securities in physical formats in simple terms. The physical maintenance and transfer of shares and other financial assets were costly. The stamp duty charge and the amount of work required to authenticate your security were tedious.
Physical trading faced drawbacks that included forgery, shares being lost in postage, excessive delay in receiving money or shares, etc.
In India, Trading officially began with the establishment of the Bombay Stock Exchange in 1875. Bombay Stock Exchange is the oldest Stock Exchange in Asia, commonly known as BSE. At the time of writing, BSE was the 10th largest exchange globally, having around 7400 companies listed.
In 1992, the Government of India passed the Securities and Exchange Board of India Act 1992. It has become history since the birth of the electronic Demat account. In India, the Demat Account system came into existence for trades on the NSE in 1996. The National Stock Exchange (NSE) is the 2nd largest exchange in India. It is widely known as the 11th largest exchange in the world.
The government of India passed the Securities and Exchange Board of India Act 1992. The Securities and Exchange Board of India (SEBI) is the regulatory body that came into existence in 1988. The objective of the Indian Government behind SEBI is to regularize trading to curb the ill effects of physical shares in the Indian stock market. They perform under the jurisdiction of the Ministry of Finance in India.
On February 1, 2000, NSE started facilitating online trading in India. On 1st April 2000, Internet trading began with around 79 members looking to do so. Geojit Securities has become the first brokerage firm in India to go online.
National Securities depository Ltd (NSDL) is the first National depository in India established in August 1996 by NSE and other India’s leading financial institutions to provide Dematerialization facilities.
Central depository Services Ltd (CDSL) is another primary depository in India regularized in February 1999. It was promoted by the BSE and a few commercial banks in the initial stage.
An NRI account is an account that must be opened by a Non-Resident Indian (NRI) with a financial institution in India to avail of various financial products and services in India. It is authorized by the Reserve Bank of India (RBI).
There may be various reasons for individuals to leave India, and one of them is to get employment in a different nation. According to the Income Tax Act 1961, an NRI is an individual who has been:
DDifferent types of NRI accounts are provided in India for NRIs with different needs and requirements. You need to understand the various features and benefits of such accounts so that you can choose the one that suits your unique needs and requirements.
There are three major types of NRI accounts registered under the Reserve Bank of India
(RBI):
● Non-Resident Ordinary (NRO) Account
● Non-Resident External (NRE) Account
● Foreign Currency Non-Resident (FCNR) Account
NRO Savings Account
An NRO account stands for a Non-Resident Ordinary Account. They are Savings accounts. It
allows NRIs to maintain and manage income earned in India in INR denominations through
sources like rent, dividends, and so on. There can be joint account holders between NRIs and
Indian Residents. The interest earned on an NRO account is subject to Tax Deductible at
Source (TDS).
Whenever an NRI deposits foreign currency in his NRO account, it will be convertible to
Indian rupees at the ongoing foreign exchange rates.
NRE Savings Account /Fixed Deposit Account
A Non-Residential External is commonly known as an NRE Account that allows NRIs to maintain
earnings from the country where they reside. They allow you to hold in Indian rupee
denominations. The interest earned in an NRE account is non-taxable in India.
Since an NRE account holds money in INR denomination. When you deposit foreign currency in
an NRE account, it is converted to Indian rupees at the current foreign exchange rate.
Some of the features of this type of account are as follows:
● The principal amount and the interest are transferable between two NRE accounts and
between an NRE and an NRO account.
● In the case of NRE accounts, there can be joint account holders between NRIs and Indian
Residents.
FCNR Account
Foreign Currency Non-Resident Accounts are commonly known as FCNR accounts, allowing NRIs to
deposit income earned overseas in foreign currency only. They are fixed deposit accounts.
Any one of the foreign currencies is held in this type of account. The only condition is
that the RBI should give it authority. The interest earned on an FCNR account is non-taxable
in India.
The currencies that you can deposit in an FCNR Account are –
1. US Dollars (USD)
2. Canadian Dollar (CAD)
3. Australian Dollar (AUD)
4. Euro (EUR)
5. Great Britain Pound Sterling (GBP)
6. Singapore Dollar (SGD)
7. Hong Kong Dollar (HKD)
8. Japanese Yen (JPY)
9. Swiss Franc (CHF).
If an individual has earnings in any of these currencies, their deposits will remain as it
is. But, if the individual earns in any other currency, then the deposits made in it will
get converted to one of the currencies you choose from above.
The feature of an FCNR Account is as follows:
● The principal amount and the interest from an FCNR Account are transferable between other
NRE or FCNR accounts.
Investors and traders in India can open demat account from any national depositories. Both NSDL and CDSL ensure that all the securities in Demat accounts are safe and none are tampered with. NSDL follows the international standards for maintaining Dematerialized shares and other securities.
A depository participant (DP) enables you to create demat account once you are eligible with the criteria set by the depository. It is a mediator between a depository and the investors.
A depository participant can be a stockbroker, a bank, or any other financial institution.
Depositories and depository participants
A depository is an organization that assists investors and traders to execute trades
efficiently. It provides the facility to open demat account to help store financial assets
electronically. Here are two significant Depositories in India:
1. The National Securities depository Limited (NSDL), under the National Stock Exchange
(NSE) in 1996.
2. Central depository Services Limited (CDSL), under the Bombay Stock Exchange (BSE) in
1999.
Both these Depositories, NSDL and CDSL, provide facilities to store share certificates and
other securities. They are responsible for maintaining all Demat and trading
accounts.
Although both these Depositories are situated in Mumbai, they provide their services across
India through many depository participants (DPs).
Here are some of the examples of depository participants in India are:
● depository participants of NSDL
● National Stock on India Ltd
● Industrial Development Bank of India
● State Bank of India
● HDFC Bank Ltd
● Deutsche Bank
● Axis Bank
● Bombay Stock Exchange Ltd
● Bank of Baroda
● Bank of India
● State Bank of India
● HDFC Bank Ltd
Functions of a depository participant (DP)
● It provides a smooth process to open demat account.
● It provides a BO ID number that the depository gives.
● It helps in the Dematerialisation of securities. It is the conversion of Physical stocks
and other securities into electronic form.
● It helps in the Rematerialisation of securities. The Remat process converts securities
held in electronic form back into Physical form.
● It facilitates the transfer of Securities.
● It facilitates you to keep Securities in your Demat account as collateral for securing a
loan from a financial institution.
● It facilitates an easy fund transfer from your bank account to your Demat account and vice
versa in no time.
Individuals with enough knowledge about the Business and the Financial Market can become depository participants. They can be Brokers or Sub-Brokers with enough funds to convert their Businesses into depository participants. Banking and non-Banking Financial Company (NBFCs) companies or partnership firms can register themselves with Depositories.
Specific eligibility criteria need to be fulfilled. According to The Depositories Act, 1996
and SEBI (Depositories & Participants) Regulations, 1996, there is a list of eligible
entities to become depository participants.
The list is given below:
● Public Financial Institutions can easily be depository participants.
● Scheduled Banks include Foreign Banks approved by the Reserve Bank of India (RBI).
● State Financial Corporation was founded under the State Financial Corporations Act,
1951.
● Government entities promote institutions that are engaged in granting financial
services.
● A Stock brokerage firm with a Certificate of Registration under the SEBI Act, 1992.
● Non-Banking Financial Company has a net worth of Rs.50 lakh or more.
● Registrar of Issue and Transfer Agents should have a minimum net worth of Rs.10
crore.
A depository participant is an institution that works for the investors per the
Depositories.
They open demat account and a trading account and provide other helpful information for
investors. They make sure that you have good experience in trading your securities.
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