One of the elements that define the extremely competitive world we live in is discounts. From online food ordering applications to retail giants, virtually every organisation offers some form of discount to customers, and depository participants (DPs) are no different. You would find no shortage of DPs offering free demat accounts online.
While the prospect of cost savings with regard to a demat account may appear enticing, it is important to look beyond the surface, and gauge whether there are some downsides to a free demat account. In this article, we shall discuss
- How to start a demat account
- Advantages of a free demat account
- Disadvantages of a free demat account
How To Start A Demat Account
It is easy to open demat account online; all you have to do is select a registered depository participant and visit their official website to begin the account opening process. You can also visit the official website of either the National Stock Exchange or the Bombay Stock Exchange to choose a DP and start a demat account application form. It is convenient to open a demat and trading account with the same DP.
The key documents required to start a demat account in India are as follows:
- Proof of Identity
- Proof of Address
- Proof of Income (for trading in derivatives)
- Permanent Account Number
- Passport-size photographs
Key Advantages Of A Free Demat Account
There are several advantages of a free demat account, prominent amongst them being:
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Ability to test your DP’s platform and services
With a free demat account, you can check the functionality and operational efficiency of a particular depository participant and ascertain whether you would like to continue with their services. Should you not find said platform and services satisfactory, you can close the demat account through a simple process.
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Safe storage of your dematerialised securities
If you open a free demat account, you can enjoy the safe storage of your share certificates, debenture certificates, and other securities without any concerns such as theft, holding cost, or damage.
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Reduction in cost of investment
Since account opening and maintenance charges are a part of your overall cost of investment, having a free demat account entails some savings in terms of cost.
Possible Disadvantages Of A Free Demat Account
Despite its apparent advantages, a free demat account may have some drawbacks, some of which have been discussed below.
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Potential Hidden costs
It is possible for your demat account to be ostensibly free but simultaneously carry some hidden costs. Therefore, you must check the schedule of charges associated with your demat account as well as the terms of your contract with the relevant depository participant at the time to open trading account.
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Annual Maintenance Charges
Sometimes DPs offer free demat accounts to begin with only to charge significant Annual Maintenance Charges later. Hence the usage of the word free in a free demat account may be misleading.
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Possibility of limited features
A free demat account could likely carry limited functionality. For instance, you may be able to place buy and sell orders but not have access to the latest market data and important reports and statistics.
The Bottomline
Before starting a demat account with any depository participant, you must carry out due diligence to ensure that they are a registered stock market intermediary. In addition to this, you must carefully peruse the list of charges that apply to your demat account despite said account being marketed as a free account.
Lastly, you must check the functionality of such an account to ensure you have access to all the features and benefits that characterise a modern-day demat account.
