What is a demat account? A simple guide for beginners
· 3 min read · Tryvest
What a demat account is, how it differs from a trading account, what you need to open one, typical charges and the basic services demat account (BSDA), explained simply.
If you want to buy shares in India, you will hear about a demat account very early. It sounds technical, but the idea is simple. This guide explains what it is, how it works with a trading account, what you need to open one and what it usually costs.
What is a demat account?
Demat is short for "dematerialised". Shares used to be paper certificates. Today they are held electronically, and a demat account is where they are kept, a bit like a bank account that holds shares, ETFs and bonds instead of money.
In India, the electronic records are kept by two depositories, NSDL and CDSL. You do not open an account with them directly. You open it through a depository participant (DP), such as a stockbroker or a bank registered with SEBI.
Demat account vs trading account
- A trading account is used to place buy and sell orders on the stock exchange.
- A demat account holds what you own after the trade is complete.
- A bank account linked to both is where money goes out when you buy and comes in when you sell.
Most brokers open a trading and a demat account together, so it feels like one account.
What happens when you buy a share
You place an order through your trading account, money is taken from your linked bank account, and the shares are credited to your demat account. Indian stock markets settle trades on T+1: the shares reach your demat account one working day after the trade.
What you need to open one
- A PAN card
- Address proof (for example Aadhaar) and a recent photograph
- A bank account in your name
- KYC, often done online with an Aadhaar-based OTP, a signature and an in-person or video check
You can also add a nominee, the person who can claim your holdings if something happens to you.
What does it cost?
Charges differ by DP, so always read their charges list. Common ones are:
- Account opening: free at many DPs
- Annual maintenance charge (AMC): a yearly fee for keeping the account
- DP charges: a small fee each time shares are taken out of your account when you sell
If you are just starting, ask about the basic services demat account (BSDA). Under SEBI's rules from 1 September 2024, an individual with only one demat account (as the sole or first holder) and holdings worth up to ₹10 lakh can have a BSDA. There is no AMC on holdings up to ₹4 lakh, and at most ₹100 a year plus GST between ₹4 lakh and ₹10 lakh.
Do you need a demat account for mutual funds?
No. You can buy mutual fund units directly from the fund house or through an app, and hold them without a demat account. You need a demat account for shares, ETFs and listed bonds.
Keeping your account safe
- Never share your password, OTP or PIN with anyone, including people who say they are from your broker.
- Check the consolidated account statement (CAS) the depositories send you, so you know exactly what you hold.
- Be careful with anyone who asks for control of your account or promises guaranteed profits.
Key points
- A demat account holds your shares electronically; a trading account is used to buy and sell them.
- You open it through a SEBI-registered DP, with PAN, KYC and a bank account.
- Compare charges, and consider a BSDA if your holdings are small.
Want to see how buying and selling works before opening an account? Practise with ₹10 lakh in virtual coins on the Tryvest simulator.