7 Things To Consider Before Opening A Demat Account

Now are you ready to start your financial journey by investing in stock market?. When I took the same decision in 2006, the first question I had in my mind was where to open the demat account.

Some of the other queries that were bugging me that time were,

What are the things I should consider before opening a demat account? Is there any important factors I should take care when opening a demat and trading account?.

So, In this post I will provide some pointers which may help you in choosing your first demat account or your another one.

What is a Demat account? Why it is required?

Starting from year 1996, Indian government has mandated that all the share transaction shall happen in Digital form and introduced a account called Demat account – short form of Dematerilized Account, to hold the shares in electronic form.

Before that all the shares were in physical certificate form. It has now become compulsory to convert it to demat form before transacting in stock exchanges.

Demat has many advantages like no problem of theft or damages due to natural calamities like floods or earthquake.

Things To Consider Before Opening A Demat Account

Opening a demat account now is very easy but choosing the right demat account is not so easy. Now one can open a demat account completely online within 20 minutes. Earlier, I still remember, It took me 3 weeks to get my demat account opened. I had to send the filled forms which had around 46 signature, supporting documents and a cheque to the broker. Account was opened only after the cheque was realised.

Because of the easy process, now the chances of opening the demat account with a broker who is not guanine and trustworthy is also high as everything happens online.

Lets look at some of the factors which are very important while opening a best demat account in India in my opinion.

#1. Registration With Regulatory Bodies

As we have started with trust factor, it is very important to open the account with only the stock brokers who have license of registration with government.

In India, Security Exchange Board of India (SEBI) is the watchdog of financial markets. A stock broker is recognised only if they have registration with SEBI.

The first thing you check before opening a demat account with a stock brokers is to check if the broker has displayed SEBI registration number on their official website. Run away from the local broker who dont care to put up any registration number on website.

They should also mention their membership number of stock exchanges like NSE and BSE.

#2. Robustness of Technology

Now after the invent of the discount brokers, almost all brokers have more or less become same as far as brokerage charges are concerned.

What differentiate between any two broker today is the quality of the platform and app they provide to their customers.

The trading platforms offered by them should be robust and stable. They should not crash during major stock market events.

It should also be secure enough to protect your data. So check for high grade encryption to prevent unauthorised and unethical attack to protect your privacy.

#3. High Quality Support System

Nothing matters when your stock broker is there to support you when you need him most. A good customer experience is very much required for many transaction other than the regular buy and sell, such as pledging of shares, transfer of shares from one demat to another etc.

He should mandatorily have email and phone support system. In new age branch and relationship manager is not important.

If you raise a complaint, make sure that they create a support ticket. This ticket shall have all the details such as what is the issue, date of reporting the issue and name of the customer support executive handling the ticket issue etc.

#4. Complaints Pending Against The Demat Account Provider

Another way of measuring the quality of the demat account is to check how many complaints are outstanding against the stock broker at NSE or BSE website from their customers.

While it is impossible to not to have any complaints, make sure the number of complaints per hundred customers is less comparative to average in the industry.

Also check online reviews and social media discussion about the broker.

#5. Demat Charges – important factor while opening a demat account

Obviously we are in stock market to make money and dont want to loose major chunk of money in terms of demat charges.

Some brokers charge exorbitant brokerage charges. They charge on certain percentage of total investment/traded value. This becomes enormous when your investment amount is higher.

I trade with a broker called Zerodha whose charges is one of the lowest in India. The brokerage is Zero for investments and Rs20/trade irrespective of total value. I switched from Sharekhan to Zerodha in 2012, this has helped me to save a lot in terms of brokerage charges.

If you are interested, you can refer my review of Zerodha in which I covered most of the aspects.

#6. Range of Products And Services Offered

Investing in shares is only one aspect of the demat account. Isnt it convenient if it allows to venture into other segments of financial world?

A demat account provider should allow investing in mutual funds, bonds, golds etc.

Therefore before choosing a Depository Participant (DP) make sure he offers instruments that are popular among the investors.

#7. Number of Active Clients Of The Broker

A broker may have large number of demat accounts, but what is important is how many customers are actively using their service?

I normally happens that the customer opens the account with a broker on somebodies recommendation but later on he finds another good broker than his current one which suits his trading style. But he never bothers to close his account with the old broker.

His account is still adds to number of customers of old broker but he is not actively using it.

A active client is defined as a customer who has carried out atleast one transaction during a financial year.

So blindly dont go with number of customers but see how many customers are active because that reflect how happy they are with the service of the brokerage company.

Things to know before opening a demat account – Conclusion

These are the things wish I knew before opening my first demat account. Because, changing the demat account is not easy process though not tough.

Because, one you are used to the apps and platform of a broker, it will take little time to get to know the interface and other features of new ones.

These are the questions you must ask before opening a demat account so that later there is no need to switch.

But I suggest you to prefer broker on whom many people have trust. Dont just go with lower brokerage charges or some offers such as zero account opening fee and no AMC or free demat account etc. You will later find out that there are too many hidden charges.

I am trading with Zerodha since 2012 and satisfied with their service. You can consider them if you wish.

The account opening charges are Rs400. But you will get discount of Rs200 when you open the account online.

You can use below button to open the account online.

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