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A demat account is necessary if you want to trade in the stock market, securities or other equities. If you’ve thought about trading in the stock market, you probably already know this. A demat account is essentially, just like a bank account. The difference between them is that a bank account holds your money, while a demat account keeps your shares.
Since both these accounts concern your finances, there are several factors that you should keep in mind when opening one of them. While opening a demat account online is a fairly easy procedure, choosing the right one is not as simple. As an investor, especially if you are a beginner, there are a number of factors that you should consider before you finalize a service provider for your demat account. Let us take a look at some of these factors you must look at.
Is the legacy of the company good enough?
Whenever it comes to managing your finances, you must always consider the trust and the investor base associated with the company you choose. It is essential to look for a platform that maintains a strong base of investors, along with a presence all across the country. This ensures that your service provider of choice is trustworthy and it will help filter out operators who may not be able to deliver on the promise of excellent returns. It is best to take some time to research and do the due diligence on the legacy of your chosen depository participant, along with their customer base, the duration they have operated for, and the number of branches they operate.
Does it provide robust security?
Everything choice we make has its own set of pros and cons. While the virtual world provides several advantages, there is also a security risk that comes with it. We need to take in to account this risk, even more so when it concerns your finances. Your demat account provider must be equipped with state of the art security softwares and firewalls that can properly protect your financial information. Any data must be encrypted with the highest security levels when moving between servers.
Should you have the same demat and trading account broker?
Although most brokers operate both your demat and trading accounts, there can be scenarios, where a broker does not have a Depository Participant license, which is required for a broker to be able to open and maintain a demat account. In such cases, it is essential to submit the debit instruction slip to your broker on time after selling your shares. Failing to do so results in a bad delivery and you may end up incurring losses. Having one entity as both your broker and Depository Participant will make the procedure seamless, making your experience simpler and easier. It is definitely better to have the same broker for both types of accounts.
What are the demat charges involved?
While many services advertise that you can open a free demat account with them, it is important to understand that account opening charges are just one of the costs associated with maintaining your demat account. An annual maintenance charge may be billed to keep your account maintained. This charge is usually dependent on the valuation of shares present in your demat account. Every time you sell a share, and it gets debited to your demat account, a charge is incurred by NSDL or CDSL to the Depository Participant, which is also billed to you. You could also be charged a fee every time you request a physical statement, apart from any other charges that may be covered under the fine print. It is important to know and understand all of these charges since they are important and cannot be avoided, which will impact the returns you see from your trades.
Is the banking, broking and custody seamless?
In case your broker is a bank, the banking, broking and custody charges can be handled entirely seamlessly by the bank. The major advantage of having the same entity function as your banker and broker is that you can use NEFT, RTGS or UPI payment methods since they are usually free. Most brokers, on the other hand, charge a nominal amount in case you use an authorized payment gateway. The more seamless the process is, the easier your life gets.
Does the DP provide high quality support services?
Trading in the stock market is time sensitive and faster services result in more efficient trading and returns on investment. A Depository Participant should not be judged just on the basis of routine transactions, but also on the basis of the ancillary services they provide. You should consider the time duration taken by them to get your physical shares dematerialized and whether your account is automatically credited with corporate actions. Moreover, you should also consider the efficiency with which issues like customer complaints, lien and pledge are dealt with. Ensuring all these meet your requirements helps you get a more satisfactory service experience.
Are there pending complaints against the DP?
Through checks about the service standards of the DP are essential to judge their work hygiene and quality. A major red flag is if a Depository Participant has many pending complaints on the service level with SEBI. Furthermore, you should also ensure that there are no ongoing regulatory investigations against them. While it is true that everything you read online may not be correct, a large percentage of reviews being negative is definitely a point of concern.
If you are looking to make investments and are in need of a demat account, you can create one with KFintech here https://ipo.kfintech.com/
