Opening a Demat account is the first step to dematerialize your securities and shares. The process to dematerialize involves a series of documentation. All your documents must be in order. To open a trading account you need to follow these basic steps. If you do all the steps right, you will be ready to start trading in a couple of days.
Here are some important steps that you need to keep in mind while opening a Demat account.
- Identify your DP to open a Demat account
- Documentation and procedure of opening a Demat account
- Signing and executing the DP agreement
- Actual DP account opening
- Signing a power of attorney (POA) for online debits and credits to Demat
Step#1: Identify your DP to open a Demat account
There are several DP available, offering a different set of services. To choose the right DP you need to analyze their services, proximity of the DP from your home or office and fees of their services. You can also ask you DP to open your trading-cum-Demat account. It is recommended that you choose a single broker to open your trading account and Demat account. It makes your Demat process smooth and a lot quicker. When it comes to issuing debit instruction slips (DIS) for the sales of shares.
Step#2: Documentation and procedure of opening a Demat account
The two essential documents you require to open a Demat account are proof of identity and your proof of residence and income tax PAN card.
For proof of identity, you can choose to give a copy of passport, Aadhar card, Voter ID card, Pension Card, etc. for proof of address you can submit your passport in which your current address is updated, your telephone bill, property tax assessment, income tax assessment, credit card bill, electricity bill and more. All these documents are needed to be submitted as a self-attested photocopy, supported by originals for verification.
Step#3: Signing and executing the DP agreement
Once you have submitted all the relevant documents, the next step is signing the DP agreement. The DP agreement format is defined by SEBI and each DP will have its agreement format. Read the agreement carefully before you affix it. The agreement includes a list of rights and obligations of the stock trading account holder.
The agreement along with rights and obligation includes the schedule of charges that are very important to understand. You must read the terms and conditions written in the contract in a fine font. If you have any doubts you can ask your DP.
Step#4: Actual DP account opening
Once you have done the documentation and agreed to the terms and conditions, the DP will take a couple of days to verify the information and get the compliance approval. Post receiving the compliance approval, your account is open and good to go.
The DP will then allot you a Beneficial Ownership Code (BO) which is your account number. The account number is a combination of your DP id and your BO code. This code has to be mentioned while applying for an IPO.
Step#5: Signing a power of attorney (POA) for online debits and credits to Demat
Once you have reached the final step of opening a Demat account, and when you sell shares from your share market account you are required to give your DIS to the broker on the same day, or else it goes in an auction.
But this is for only a regular trader, to overcome that you can execute a power of attorney (POA) in favor of your broker that will automatically debit your DP account when you sell shares.