INTRODUCTION In india, shares and securities are held electronically in a dematerialized (or "Demat") (/dimæt/;) account, instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker (or sub-broker). The Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialized account for the purpose of transacting shares. Access to the Dematerialized account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the Dematerialized account are automatically made once transactions are confirmed and completed. Demat is nothing but a dematerialized account. If one has to save money or make cheque payments, then he/she needs to open a bank account. Similarly, one needs to open a Demat account if he/she wants to buy or sell stocks. Thus, Demat account is similar to a bank account where in the actual money is being replaced by shares. In order to open a Demat account, one needs to approach the Depository Participants [DPs] In India, a Demat account is a type of banking account that dematerializes paper- based physical stock shares. The Demat account is used to avoid holding of physical shares: the shares are bought as well as sold through a stock broker. In this case, the advantage is that one does not need any physical evidence for possessing these shares. All the things are taken care of by the DP. This account is very popular in India. Physically only 500 shares can be traded as per the provision given by SEBI. From April 2006, it has become mandatory for any person holding a Demat account to possess a Permanent Account Number (PAN). Depository participant In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI. As of 2012, there were 288 DPs of NSDL and 563 DPs of CDSL registered with SEBI.[1][2] SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs. Depository is an institution or a kind of organization which holds securities with it, in which trading is done among shares, debentures, mutual funds, derivatives, F&O and commodities. The intermediaries perform their actions in variety of securities at Depository on behalf of their clients. These intermediaries are known as Depositories Participants. Fundamentally, There are two sorts of depositories in India. One is the National Securities Depository Limited(NSDL) and the other is the Central Depository Service (India) Limited(CDSL). Every Depository Participant(DP) needs to be registered under this Depository before it begins its operation or trade in the market. Transfer of Shares between (depository participant) DPs To transfer shares, an investor has to fill one of two kinds of Depository Instruction Slip (DIS). The first check made is whether both Demat accounts are at the same depository. There are two depositories: (CDSL (Central Depository Service (India) Limited) and NSDL (National Securities Depository Limited)). If both demat accounts are not at the same depository, then an Inter Depository Slip (Inter DIS) has to be filled and submitted. For example: If there is one Demat account with CDSL and the other Demat account with NSDL, then an Inter-DIS is needed. (In case the investor needs an Inter-DIS, the investor should check with the broker, since brokers usually issue an Inter- DIS). Now that the correct DIS has been determined, information pertaining to the transfer transaction has to be entered: scrip name, INE number, quantity in words and figures. Finally, the investor should submit that DIS to the broker with signatures. The transfer broker shall accept that DIS in duplicate and acknowledge receipt of DIS on duplicate copy. The investor should submit the DIS when the market is open. Accordingly, date of submission of DIS and date of execution of DIS can be same or a difference of one day is also acceptable. The investor also has to pay the broker some charges for the transfer. A Depository Instruction (DIS) is almost like a cheque book, so it can be misused if issued blank. Hence, an investor should exercise sufficient caution while issuing a DIS slip. For example: an investor should deposit only a completely filled-in slip to the broker. Unfilled rows should be cancelled out so that they cannot be tampered with. Documents Required For Demat Account To open a Demat account you have to provide documents which fulfill the requirements of KYC (Know Your Customer) norms. You have to sign a contract with Stock broker. Generally the documents are: PAN (Compulsory) Bank statement (last 3 months) Address Proof Income Tax Return Two colour photos Bank crossed Cheque (If required) KYC details HOW TO OPEN A DEMAT ACCOUNT ? Opening an individual Demat account is a two-step process: You approach a DP and fill up the Demat account-opening booklet. The Web sites of the NSDL and the CDSL list the approved DPs. You will then receive an account number and a DP ID number for the account. Quote both the numbers in all future correspondence with your DPs. So it is Just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open yourdemat account. Let’s say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100 of ACC. All these will show in your demat account. So you don’t have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adJusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. Is a demat account a must? Nowadays, practically all trades have to be settled in dematerialised form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more. So a demat account is a must for trading and investing. Most banks are also DP participants, as are many brokers. You can choose your very own DP. To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients. A DP will Just give you an account to hold those shares. You do not have to take the same DP that your broker takes. You can choose your own. Banks are also advantageous because of the number of branches they have. Some banks give the option of opening a Demat account in any branch, while others restrict themselves to a selected set of branches. Some private banks also provide online access to the Demat account. So, you can check on your holdings, transactions and status of requests through the net banking facility. A broker who acts as a DP may not be able to provide these services. DEMAT ACCOUNT OPENING COST AND OTHER CHARGES The cost of opening and holding a Demat account. There are four major chargesusually levied on a Demat account: Account opening fee, annual maintenance fee, custodian fee and transaction fee. All the charges vary from DP to DP. Depending on the DP, there may or may not be an opening account fee. Private banks, such as ICICI Bank, HDFC bank and UTI bank, do not have it. However, players such as Karvy Consultants and the State Bank of India charge it. But most players levy this when you re-open a Demat account, though the Stock Holding Corporation offers a lifetime account opening fee, which allows you to hold on to your Demat account over a long period. This fee is refundable. Annual maintenance fee: This is also known as folio maintenance charges, and is generally levied in advance. Custodian fee: This fee is charged monthly and depends on the number of securities (international securities identification numbers – ISIN) held in the account. It generally ranges between Rs. 0.5 to Rs. 1 per ISIN per month. DPs will not charge custody fee for ISIN on which the companies have paid one-time custody charges to the depository. Transaction fee: The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis. While some DPs, such as SBI, charge a flat fee per transaction, HDFC Bank and ICICI Bank peg the fee to he transaction value, subJect to a minimum amount.