InvestorQ : Can you give me a check list of important points I need to remember when opening a demat account? How will these help me in having a better demat experience?
prachi Patwardhan made post

Can you give me a check list of important points I need to remember when opening a demat account? How will these help me in having a better demat experience?

Answer
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1 year ago


Demat is to your shares what your bank account is to your cash. It helps you to hold shares in electronic custody. Demat has made life a lot simpler for traders and investors in the stock market. It has largely overcome the hassles of trading in physical share certificates. Challenges like duplicate certificates, fake certificates, and loss in transit, bad delivery and mutilation of share certificates are a thing of the past. However, demat account is after all an electronic ownership statement. It is like a bank account where you maintain your equity holdings. Remember, while your DP helps you to open the account, the shares are actually resident with the depository; NSDL or CDSL. Being government backed organizations your shares are absolutely safe. When you open a demat account you are the beneficial owner (BO) in this case while the depository is the Registered owner (RO). Operating your demat account is a lot about smart usage and security. What is critical is how to use your demat account. There are things to know about demat account in India and demat account services in India. Here are 10 things that you must remember when you open a demat account with a broker or with a bank and start trading in shares and other securities. You can use this 10 point checklist effectively before you zero in on your demat service provider.

Your demat journey begins with dematerializing your shares if you are still holding it in physical form. Make it a point to record the distinctive numbers of securities sent along with the folio number of the share certificates. It is still better if you keep a photocopy of the certificate with you. Ensure that your name in certificates matches with that in the demat account and let it be in the same order in case of joint holders. Keep the acknowledgement of Demat Requisition Form (DRF) submitted to the DP safely till you get the demat credit.

Do you verify your transaction statement carefully for all debits and credits in your account? In case of you see any unauthorized debit or credit, inform your DP and then escalate it to CDSL/NSDL. Don’t wait for the DP to send you the statement. Register for online demat and you can view and check your statement on a real time basis.

When you sell shares you need to fill up the debit instruction slip (DIS). Remember to mention the details like ISIN, number of securities accurately. In case of online trading, the broker may ask you for a power of attorney to simplify the Demat process. This is perfectly legitimate and permitted under the regulations in the interests of simplicity. While that is convenient, there is no onus on you to accept that arrangement, and you can opt to sign DIS physically.

While filling up the DIS, avoid over-writing, cancellations, misspellings, of the name and quantity of securities. Double check your numbers, names and figures entered and always cross out the space that you do not use to avoid any mischief at a later stage.

What about your DIS booklets. Here are a few basic precautions you need to take beforehand. Insist that the DIS numbers are pre-printed and your account number (client id) is also pre-stamped on each DIS page. Never accept or use loose leafs from your DP. Many RMs tend to suggest that you leave signed DIS slips with your broker, sub broker. That is something you should always avoid. Above all, keep your DIS booklet in a secure and safe place and ideally under lock and key where only you have access to it.

Never pay any of the demat charges in cash. Insist that all charges will be only paid by cheque or by online bank transfer, however small the fee may be. This is in your interest as it will avoid any misuse of cash. Demat and SEBI regulations prevent you paying any of your demat related charges by cash.

Have you checked your demat account before selling shares. You can only sell those shares that you already have delivery in your demat and these shares must not be blocked by any kind of lien. Don’t sell more shares than you have in your demat account. While the broker will check your balance before executing in case of online transactions, the onus is still on you. Make it a point to check the clear balance in your demat account before you issue any DIS. This is more so in case of T2T stocks because these T2T stocks cannot even be closed intraday. Any excess sale of shares will result in auction losses, which can be very steep.

If you have to issue a DIS then the trading account and demat account must be on the same name. Don’t issue DIS from your wife’s account for your trades. Better still, you can do an offline transfer from wife’s DP account into your own account and then issue a DIS against these shares. Also don’t offer your shares to others. When you are travelling avoid leaving signed DIS slips with your family members to take care of emergencies. Any such laxity can cause immense damage to you financially.

Never leave your demat account idle for too long. In case you are going abroad for a prolonged period or you are not going to operate your demat account for compliance reasons, then you can use the facility of freezing the demat account. In case you are not transacting frequently make use of the freezing facility provided for your demat account. This will ensure that there can be no debits and credits to your demat account unless you give a letter to de-freeze the account. This will not only avoid misuse of your demat account, but you are also closing the way for any possible fraud in your account.

SEBI permits offline transfers of shares without paying capital gains in select cases like consolidation of demat accounts, within family, for bequeathing of shares etc. Don’t do offline transfer of shares to another demat account unless it is a genuine case. The regulator and the depository keep a close tab on off-market transfers and if it feels any transaction is not genuine, and then you can get a notice to explain yourself. Avoid such situations as it is not ethical and can get you into unnecessary regulatory hassles.

These simple rules will go a long way in helping you get a better experience with your demat account opening process.