A Demat account is a place where you can hold your investments without worrying about them getting stolen or damaged. Opening a Demat account is mandatory to invest in delivery trading. It means that you can invest in stocks, mutual funds, bonds, government securities, and many more financial instruments after opening a Demat account.
The demat accounts are managed by NSDL and CDSL which are the two major depositories in India. A DP (Depository Participant) works like an intermediary or agent between the investors and these central depositories. Therefore, if you want to open a demat account, you need to consult a DP who might be a stockbroker, brokerage platform, or bank registered with either NSDL or CDSL.
In exchange for the demat services they provide to carry out various market-related transactions, they charge various demat account charges including brokerage, demat account annual charges, custodian fees, etc.
Difference between full-serving broking and discount broking
A discount broker provides the basic services that you require smoothly at an affordable price rate. The brokerage rates might vary according to the services or brokerage plans chosen by you.
A full-service broker offers all the services required to monitor and trade in multiple securities. Along with that, you get access to market research and advisory for developing smart trading strategies. However, the brokerage can be higher as their brokerage is proportional to the trade volumes. New-age investors tend to opt for discount brokers as they want to trade consistently without paying a substantial brokerage.
Types of demat account
The demat services might also vary according to the type of demat account you open. A BSDA (Basic Services Demat Account) is meant for small-time investors who want to invest in the stock market with minimum capital. The advantage with BSDA is that you don’t have to pay any annual maintenance charges for investments up to Rs. 50,000. For investments up to Rs. 2,00,000, you need to pay a nominal AMC.
A regular demat account can be opened by those who live in India. NRIs can invest in the stock market if they open a non-repatriable or repatriable demat account.
Though both these accounts are meant for NRIs, the former requires you to have an NRO (Non-Resident Ordinary) account and does not allow you to transfer your funds outside the country. However, a repatriable demat allows the transfer of funds to a foreign account if you have an NRE (Non-Resident External) account.
Factors to analyze while selecting a broker
These are the factors that you must analyze while finding which demat account is best:
Go for the brokers who offer a flat-rate pricing model for equities and intraday trading irrespective of the trade volume. It will help you to save more on brokerage which eventually improves your profit margins.
Look for brokers who have a documented history of credibility and trust. Though broking is a relatively new concept in India, you may find some brokers who integrate a transparent system in their operations. They must disclose the brokerage rates, AMC, and other demat charges upfront so that you don’t feel cheated afterward. You may check the credibility ratings offered by credit rating agencies like CRISIL to ensure that your investments are safe.
Safety of holdings
While it is necessary to open a demat account with a trusted broker, you must also ensure that the trading platform is secure from hackers and fraudsters. Latest technologies like data encryption and two-step account verification should be employed to strengthen the safety of the investors’ holdings.
Breadth of services
Stock trading is not the only form of investment in the stock market. You can also invest in IPOs, mutual funds, and enjoy services like MTF (Margin Trade Funding). At the same time, access to LAS (Loan Against Securities) service will allow you to pledge your securities to obtain a loan. Choose a broker who provides all these facilities and services at reasonable pricing.
Trading Platform & account opening process
The trading platform must be fast and support innovative features like algo trading. The platform must also be available as a smartphone app so that you can monitor your investments and trade anytime from anywhere.
Also, the broker must provide a paperless account opening procedure to enable you to open the demat account conveniently.