Demat Account
Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks.
Demat account refers to a dematerialised account.
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 your demat 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.
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.
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Mar 6th 2010
This is a useful tip…Do we need to pay any money to DP’s as we do to brokers…sometime back I contacted a firm called sherkhan.com…I believe they are brokers…so is a DP cheaper than opting a broker…can be do future and option trading with the DP account…In US only specified exchanges like CME do these alternative investment trading and account is different…can you clarify on this please?
Mar 7th 2010
DP’s and Brokers are two different things, DP is the primary account for keeping your shares in electronic form and for trading you have to have both accounts at the same time.