Do you remember how the physical share situation was? Those who were trading in the equity markets prior to 1997 would vouch for the disadvantages of the physical delivery and settlement system. Shares were lost in transit, there were signature mismatches, there was the risk of bad delivery and above all you had little control after the share certificates were given to the broker. A lot has changed since the introduction of demat in 1997. Today over 99% of all holding and 100% of all settlement happens in demat form. As an investor you have the choice of a larger number of depository participants. But how do you choose your demat account provider. Here is a 6 point checklist…
You can hold a complete spectrum in your demat account…
The general belief is that you can only hold equity shares in your demat account. That is not the case. A single demat account can hold your equity shares, corporate bonds, RBI bonds, government securities, tax saving bonds, mutual funds, gold ETFs, index ETFs etc. It is always better to hold all your securities in a single demat account or couple of demat accounts for the purpose of simplicity and easier tracking. Demat is a lot more convenient and hassle free compared to physical holding and maintenance of certificates.
How much does my demat account actually cost me?
The costs may seem to be small in isolation but can add up substantially over a period of time. Ensure that your depository participant is able to offer you a low account opening cost as well as a low maintenance cost. Remember, there are a plethora of costs involved in demat account. The account opening cost may be waived but there is an annual maintenance cost, there is the cost for every debit to your demat account and there are other charges if your DRF gets rejected or if your DIS gets rejected. Also, converting physical shares into demat and Rematerialization has an additional cost. You will have to factor in all these costs while evaluating the demat account. These will go a long way in reducing your overall cost of operating your demat account.
How many demat accounts should I have ideally have?
There is really no hard and fast rule because the rules allow you to have as many accounts as you want. But bear in mind that each DP accounts entails a cost and you need to factor that into your calculations. If your portfolio is not too large, you can do with just one DP account. It is cost effective and it is also easier to handle. However, in case you are an aggressive trader in the market and want to separate your investment portfolio from your trading portfolio, then you can consider two demat accounts at best. This will simplify the task of recording and filing of tax returns. But too many demat accounts are really not advisable.
Prefer a seamless linkage between trading, banking and demat
This is an important question you need to address. You want the entire process of executing transactions in your trading account; debit to your bank account, credit to your demat account, debit to your demat account and credit to your bank account to be seamless. This simplifies the entire process in online trading and goes a long way in simplifying the audit trail. It also makes the entire demat process more predictable. This goes a long way in helping you plan your liquidity when you buy or sell shares.
Online demat execution is the key to your convenience…
You surely do not want a situation where you need to sign and submit a Debit Instruction Slip (DIS) physically each time you make a sell transaction. That is just too cumbersome. It creates a problem in terms of availability of DIS, maintaining your DIS in a safe and secure manner as well as avoiding problems of misuse of your DIS. These problems can be obviated through online demat facility which does away with physical intervention and makes the entire process straight and seamless.
Is the DP going through SEBI or NSDL/CDSL investigations…?
This is slightly subjective but important nevertheless. Not all investigations end up proving you guilty but as a customer if you have a choice as well be cautious. Avoid the DP if there are too many negative vibes on social media, chat forums as well as constantly being pulled by the central DPs and the regulator. That is a sign of laxity in process and that is the last thing you expect from your DP. When in doubt, think with your feet.
Demat account offers the facility to hold a broad spectrum of financial investments in a single account including equities, bonds, ETFs and even mutual funds. This enables you to control all your investments with a single login. Most DPs also offer you analytics that you can use to fine tune your holdings and transaction trail analysis.