Opening a demat account has become a very simple process. Once you submit the relevant documents, you can open a demat account online instantly. Having a demat account is mandatory if you want to begin trading in the stock markets. A demat account facilitates the process by holding your shares in an electronic form. However, if you are a new investor who wants to open a demat account here are some important terms you must know.
A depository is an organization which holds securities such as shares, bonds, government securities, debentures, mutual funds etc. They are very similar to banks but they hold securities in an electronic form instead of money. Currently, there are two depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Both the CDSL and NDSL are registered with the Securities and Exchange Board of India (SEBI). NDSL comes under the National Stock Exchange (NSE), while CDSL functions under the Bombay Stock Exchange (BSE).
Depository Participants (DP)
Depository Participants or DPs are an intermediary between the depository and the investor. When an investor wants to avail any services from the depository, he has to do it through a depository participant.
Annual Maintenance Charges (AMC)
As the name suggests, the annual maintenance charges or AMC is charged for the maintenance of your demat account on a yearly basis. The AMC charges are often negotiable if you work with a reputed MNC or you are planning to invest a big amount in your demat account. Certain DPs may not charge the AMC if you have enrolled under one of their corporate plans.
Transaction fee is the amount charged on each transaction you perform in the stock market. When you buy or sell shares in the stock market, the DPs will charge a flat rate on each transaction. However, the rate of transaction varies in different DPs.
Conversion fee is the amount charged when you convert your physical shares to the electronic form i.e. dematerialization. If you are a new investor and do not hold any shares, then you need not worry about this fee. It will only be charged if you want to convert your existing shares.
In case of your death, the ownership of the shares in your demat account is transferred to the person who you declare as your nominee. A nominee should be declared only after careful consideration.