Friday, May 17, 2013

Demat Account for investing in stocks

This article was originally published in Postnoon on May 16, 2013

Prof. Nicky was distracted by the knock on her door. Vishal, a first year MBA student, with a rich dad, was peeping through the door.

Prof. Nicky: Come in Vishal. What brings you here?
Vishal: Professor, I have some spare pocket money with me, say around Rupees fifty thousand. I am quite fascinated by the world of the stock markets and wanted to invest in a few shares. But I don't know from where to start. Could you help me please?

Nicky: Do you have a Demat Account?
Vishal: No I don't. How do I get one? And why do I need one?

Nicky: You need a Demat account because the shares are stored in an electronic dematerialised form now a days. Paper shares are no longer issued. So to ensure that the shares bought by you are properly credited in your account, the demat account is mandatory.
You have to first select a Depository Participant (DP) like IIFL, HDFC Securities, India bulls etc. Then fill up the Demat account opening form given by the DP that you choose. Attach all the documents required by them like proof of identity and address. You will also need to produce your original Permanent Account Number (PAN) card while opening your account.

Vishal: The procedure seems similar to opening a bank account! Will the DP do the transactions for me?
Nicky: Once the account is opened, the DP will provide you a Unique Beneficial Owner Identification (BO ID) to quote while making transactions. While selling and buying shares, you need to specify your BO ID and provide the DP with instructions to buy or sell, for example, which company, how many shares, at what price, which exchange, etc. Following which your Demat account will get updated and payment for the transaction will be made through broker/ sub broker / bank.

Vishal: How will I be able to keep a track of my transactions then? How much will they charge me?
Nicky: The DP will provide you with periodic statements of your stock holdings and transactions. The charges for opening and maintaining the Demat account differs with DPs. A fair idea of comparative rates can be obtained from the NSDL and CDSL websites.

Vishal: How do I choose a company to invest in?

Nicky: There are various ways of valuing a stock. You can do it personally with the help of past records of the companies or you can take the help of an advisor/broker. But, to begin with, go get a demat account opened. We can chat about picking stocks after that. And please ensure that you inform your parents that you are going to be putting their money in the stock market.

Vishal: Sure Prof.!
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