6 Tips on Opening Your First Demat Account
Every financial advisor will tell you never to put all your eggs in the same basket. Trading in the stock market has become much easier than it was, say 10 years ago, and now is the right time to start investing.
It is essential to have a Demat account if you want to play the stock market. As per a recent report published in the Economic Times, there was a record number of new Demat accounts that were opened – 6.18 lakh in March and around 6 lakh in April. This goes to show that despite the lockdown, more number of investors have started to get on board the stock market.
If you too want to benefit from the potential of equity by investing in shares directly, then you need to set up a Demat or online brokerage account. Are you still confused about what is Demat account? Think of it as your personal account where the shares you purchase can be held in electronic format. A Demat account is also good for storing other investments such as mutual funds and bonds.
Here are some tips that you can follow while setting up your first account.
1. What kind of broker should you choose?
For buying and selling shares, you have to choose a broker who would be carrying out all your transactions. You can opt for either a full-service broker or a discount broker. The difference between the two lies in the products and the range of services that they offer.
Both Discount Broker and a Full-Service Broker permit you to trade stocks, futures, and options, and also invest in IPOs and Mutual Funds. However, only a Full-Service Broker provides investment advice and perform financial analysis for their clients, thus making them the preferred choice for individuals who seek personal financial planning. Also, Full-Service Brokers are known to deliver better service overall.
2. Look for Brokerage Charges
It is essential to check the broking charges and fees charged by a broker before settling with anyone. Some of them waive off account opening charges. It is essential to be aware of the charges levied per transaction as it varies from one broker to another.
Most brokers usually offer a pricing plan to suit every investor. A flat pricing plan is generally preferred. There is also an option for volume-linked pricing where the price goes down as the volume goes up. There is even a pre-paid pricing option available where an upfront payment has to be done to the broker. You can choose a package that is most ideal for you.
3. Opening Appropriate Accounts
For investing in the stock market, you need to have three accounts in place. They are a Demat account, a Trading account, and a Bank account. Without having a trading account, your Demat account would just be a storehouse of holding your shares & securities in a digital format. You can invest in IPOs, stocks, gold, mutual funds and hold them in Demat account through a trading account.
Both brokerage and trading accounts can be opened online. However, you will have to sign the Power of Attorney in a physical format for the purpose. You also need to submit your Aadhar Card while opening trading and Demat accounts.
4. Provide details of Nominee
While opening a Demat account, you will have to identify who your nominee would be. In case of your untimely demise, all your investments would be transferred to the person who you have chosen as your nominee.
5. Check for the Trading Software
Another crucial factor to look into while creating a Demat account is the trading software provided by the broker. You also need to check if it is user-friendly or not. Choosing a complicated software will make the entire process difficult for you.
6. How good is the Customer Support?
Despite advances in technology, there are times when a transaction doesn’t go smoothly. In such times, you will have to take support from a customer support team who will resolve all your issues in no time. Before opening a Demat account with a broker, you need to check what kind of support services they offer.
It is advised that you do proper research and weigh all your options before making a final choice.