Dmat Account! Well that sounds like a bank account. Why not, they both have the same terms account associated with them. But does the similarity ends there? Let’s find out.
Dmat Account is an account to buy and sell stocks. This is the simplest thing that we can understand about it. Dmat is a short form for Dematerialized account.
What is the meaning of dematerialized (Dmat)account?
In the olden days when there was no internet, the stocks were purchased in the form of paper securities. Securities are pieces of paper that act as certificates of promises. The promises that are on paper.
For example, your dad or uncle would have bought the shares of a company in the materialized format. Materialized format means paper format. This is how a share looked like:
share certificate of Tata Chemicals
We don’t receive such share certificates any longer. All that we see is the Dmat or the dematerialized formats of shares in the form of soft copies that may of course be printed.
So, Dmat account stores all your shares certificates.
Do we store only shares in the Dmat form or anything else?
So, this is better uhnderstood when we draw a parallel between the Dmat Account and the Bank Account.
A Demat Account will store shares or the financial instruments. Like you can buy bonds, shares and mutual funds. You can buy currencies and sell them. You can buy the stock or equity derivatives.
Bank Account on the other hand is about money – cash. These days we don’t get to see a lot of hard cash. Most of it has been converted into digital form. But that’s what we do in bank account – manage our cash related instruments.
Demat Account can hold securities the same way.
What are the things that can be done using the Dmat account
You can invest into capital markets. Stocks, bonds, IPOs, Mutual funds, Equity derivatives, Currencies etc. All these are financial instruments that you will deal in capital markets.
So, by this time I guess you have realized that we need to have a Dmat account to invest into capital markets. So, the next question you may ask: Where do we go to open Dmat accounts?
Are Dmat account opened in banks?
The answer is Yes and No – both. Let me explain why?
First, I will answer the “No” part. Bank accounts are separate from the Dmat accounts. Dmat accounts are opened by the brokers of stock exchanges. There are plenty of broking houses just like banks that deal with Dmat accounts. You need to contact such broking houses or the brokers who would then onboard you and help you in getting started with investing into capital markets.
The subsequent answer is “Yes”. There are many banks that have their broking houses. So there is high probability that your bank may also be a registered stock broker with the stock exchange and providing the brokerage services. You can check with your bank for that purpose.
So this is about a Dmat account. Now, let me tell you about the opening and working of a Dmat account.
How to open a Dmat account?
Your Dmat account is opened by following a similar process of opening a bank account. You need to be ready with your KYC documents and the bank account details.
I guess you know about KYC documents. The KYC documents are:
Passport, Adhaar Card and Pan Card. Pan Card is a must without which a Dmat account can not be opened. You also would need to provide your passport size photograph.
These days the Dmat account opening process is online as well. So, you may be asked to do the live verification by standing in front of your smart phone camera.
Next comes the bank account details. The Dmat account will require funding before you can start transacting in financial instruments. So, get your bank account details ready.
You must have your bank account number, the bank name etc ready. And along with that you would also need to have a canceled check ready that will help the brokers to verify your bank account details.
You may be required to fill an application form to open a Dmat account. These days a lot of broking houses are onboarding their customers online. This helps to speed up the process of opening a Dmat account and reduce it to the fraction of time taken earlier.
You can read my below listed blogs for further learning on:
How to buy and sell shares using SBI Securities Borkerage Services. (coming soon)
Exploring the interfaces in SBI Securities Dmat account.( coming soon)
