How to ensure the best usage of your demat account

Remember, demat account gives you a lot of power in your hands. More so if you have an online demat account. You get most of the power of electronic ownership of shares at your finger tips. But there is a major onus of you and that is to ensure that you use your demat account in the best possible way. There are 3 key aspects to this debate…

How to actually go about selecting your DP?

Today, most brokers and banks offer demat services along with a trading account. The problem will arise when the bank may not provide broking or trading service along with the demat account facility. A bank allows you to integrate your savings account of the bank with the demat account as well as the trading account. That is the 3-in-1 account benefit that banks like ICICI Bank, HDFC Bank and Kotak Bank offer since they have exposure to banking, trading and DP businesses. However, with the advent of online banking, real time NEFT and RTGS, IMPS transfers and with UPI transfers also being permitted, that may not be a really big advantage. It is 2-in-1 that combines demat and trading that is a real advantage. The banking interface can be externally integrated and that is not a great addition. Otherwise, if you take a broker’s demat account, you may have to open an account with a bank with which the broker has an arrangement.

One factor you need to bear in mind while choosing a bank for DP services is the cost. Brokers usually don’t charge annual maintenance charges (AMC) for providing demat services, as they provide it as an additional service to investors trading through them. It is not the same with banks since demat becomes a separate revenue centre for banks.

How expensive is to operate the DP account

You will be surprised to learn that there are a plethora of charges that the DP levies; most of which you may not even be aware of. Some DPs ask for annual maintenance charges, others would charge a fee for opening or closing the demat account. Similarly, while some charged fees for credit of shares in the account (that has been banned by SEBI now). Similarly, some DPs would bill you on the basis of the number of companies shares held while others would calculate on the basis of the value of the transaction.

SEBI has already scrapped account opening charges, charges for custody and charges for credit to demat account. However, brokers tend to compensate through higher AMC charges per year. Then there are charges for debit to demat account, for DRFs, for bad DIS slips submitted. DPs will also charge you for sending statements or mailing holding statements to your residence address.

Best usage is all about the managing your demat account better

Lesson number one; read the fine print of your DP agreement. You normally have the sales guy sitting on your head to get your signature. Ask them to leave the DP agreement with your for a day and take time to read the fine print. Here is why…

  • Most trading cum demat forms contain an in-built clause to give power of attorney to the broker to debit and credit your demat account. Be clear that this can be misused and you must be aware that such a POA has been signed.
  • Some brokers with POA also include clauses where they don’t need to issue debit instruction slips (DIS) to the account holder. There are even clauses wherein the account holders are not entitled to operate the account once they have given the POA. There is a difference between a standing instruction to credit (which is ok to sign) and a DIS. Use this facility very intelligently.
  • Treat your DIS booklet like a bank chequebook and keep it in safe custody. Just like your chequebook, the DIS booklet has a serial number and every broker has to provide you with a pre-numbered booklet. Don’t accept DIS booklets unless your BO ID is stamped on it. Even if your broker suggests you to leave pre-signed DIS instructions, avoid that to the extent possible. In fact, SEBI rules do not permit that.
  • If your demat account is likely to be idle for some time due to your travel commitments, protect your account by using the freeze facility. For instance, you can freeze the debit or credit of shares, or freeze a particular company’s shares in your account. If you don’t plan to operate the demat account for a certain time, to be on the safer side, you can give a freeze instruction to the DP by filling up a prescribed form.

Don’t ever forget to register a nominee for your DP account. This is more so in case of an individual account because in case of joint accounts, the transmission to the joint holder is automatic.

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