In this article, we will discuss a very basic topic, where to open Demat account? We will try to provide basic and elementary information on this subject of Demat a/c. In fact, this is the most basic subject for a newcomer who wants to start trading or investing in the stock market.
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Where To Open Demat Account?
We have many options while we try to find out the answer to this basic question. There are many big names, medium names or even small names who are offering the Demat service. There are many stockbrokers, there are many banks, who are offering this service.
Nowadays, brokers are of two types. Few are full-service brokers, i.e, they charge high brokerage but offer personalized service to the clients.
- Full-service brokers keep dedicated relationship managers for the clients, provide trading calls and good trading platforms for them.
- On the other hand, few brokers are discount brokers, they charge low brokerage, but the service may be limited. Discount brokers are much like low-cost airlines, who are flying you in the same destination like full-service airlines but provide limited service while onboard like they will not provide complimentary food, etc.
So, there are many options in the big cities. In small cities may be the option can be a little limited, still, in the age of the internet, even small towns have many options. So let’s discuss what are the basic things to consider while choosing a trading account provider. Let’s discuss where to open a Demat account and also discuss the pros and cons of different service providers. We enter the stock market for profits, this initial step can be a major decision as we as a trader or investor must be in a win-win situation after choosing a trading and Demat (T&D) account.
What Is A Demat Account?
Previously also we discussed that this T&D account is the first and foremost thing we need to open if we want to enter the stock market. This is exactly like a bank account if anyone wants to save his money in the bank. In the bank, a/c our money lies while in Demat a/c, our stocks lie. So choosing a T&D account is of utmost importance. We must choose the best bank or best broker who will provide us with the best Demat account with more facilities at the lowest cost.
Demat Account FAQ
It is an old habit to go to a bank for opening trading and Demat account. But nowadays there are many discount brokers available. With the advancement of technology, traders can trade easily from their mobile or PC without aby help from any Relationship Manager. So we suggest opening your Demat a/c with good brokers like Zerodha, Upstox, 5Paisa, Fyers, etc.
In our last answer, we already recommended discount brokers like Zerodha, Upstox, 5Paisa, Fyers, etc for opening your Trading and Demat a/c.
You need to contact a good broker for the opening of the Demat a/c. They will ask for some documents. Nowadays accounts can be opened online or offline. The online account opening process is much faster. In either case, you need to provide your Photographs, PAN card, Aadhaar card, cheque leaf and bank statement for opening the account.
We need a bank a/c to keep our money. Similar we need a Demat a/c to keep the share that we possess. These shares are kept in this account in a dematerialized form. When we sell these shares, the shares go out of the Demat and the sold value (money) is credited in the linked bank a/c.
Few brokers offer the opening of free Demat a/c. Some of the names on this list are Upstox, 5Paisa, Fyers, etc.
We recommend Zerodha to beginners. Once you open an account in Zerodha you can get access to Zerodha Kite, which is their web-based flagship trading platform. It is extremely easy to use and suitable for beginners.
Where To Open Demat Account – A Case Study
So we understood that nowadays there are so many options that a newcomer can open a T&D account in many places and there is a wide choice. There are many institutions or even your bank can approach you to open A T&D account. Let’s check a case study. Ravi wants to open a trading and Demat a/c but he is confused about where to open a demat account. He has a bank account at ICICI Bank. His bank already has approached him to open a trading a/c with their broking wings named ICICI Direct. Ravi checks that the brokerage charges in his bank are too high. He needs to pay a very high brokerage for buying and selling once he starts trading.
Like ICICI Bank, other banks like HDFC Bank, Kotak Bank, Axis Bank all provide this service to their clients and all have the issue of high brokerage charge. Previously people used to work in the bank’s trading account, but nowadays there are many other options. Why should Ravi pay a high brokerage when he has many other options? Rather he can approach a stockbroker, who is not a bank and open a trading account, where he needs to pay much lower brokerage. In fact, the brokerage charges with a stockbroker can be as low as 5% of that charged by a bank. So Ravi discards the idea of opening his Demat a/c with ICICI Bank.
The only advantage of opening a trading account with a bank is that time to time banks give a higher margin to the traders. And another advantage can be that the investor sometimes feels a sense of safety, that his money is lying in his own bank account. But these benefits cannot compensate the high brokerage the banks are charging.
Why Traders Need A Lower Brokerage?
Before finding the answer to this question, let’s ask another question, why brokerage is so important for Ravi in trading or investing? There are 2 options in trading or investing, either Ravi can make a profit or Ravi can make some loss. If Ravi makes a profit of Rs 1000 his actual profit will be Rs 1000 – brokerage. And if he makes a loss of Rs 1000 his actual loss will be Rs 1000 + brokerage. So if the brokerage becomes high it can severely affect the profitability of a trader and investor.
Full-Service Stock Brokers
Ravi has many choices while choosing a broker. There are Sharekhan, Angel Broking, Edelweiss, Motilal Oswal, Nirmal Bang and many others in this field. He can approach any of these brokers for the opening of his trading account. All will give them a relationship manager, trading terminal like ODIN or Nest Trader etc and also accepts trading over the phone. Many of these brokers also have local franchise offices even in small towns, where Ravi can go and sit in their offices for offline trading. The brokerage will be decided on the volume and turnover of Ravi’s trading. So if he trades more, the brokerage will be more. So still there is an issue, brokerage cant is controlled if you are trading on high volume.
The third option for Ravi is to open an account with any discount broker. The discount brokers will allow Ravi to trade unlimited for a fixed brokerage. Like few brokers offer to trade any quantity for a brokerage of as low as Rs. 20. So this is the best option for traders trading big volumes as to the brokerage part almost becomes zero in this case. Discount brokers also have zero brokerage plans for investors. For low volume traders, they charge as low as 1 paisa brokerage per 100 rupees trading volume. Few discount brokers are Zerodha, RKSV, Samco, Trade Smart Online, etc. These brokers mainly have their setup online and so they can offer to trade at so low brokerage. See the image below to understand how Rav can save brokerage with a discount broker account.
So, before reading this article, Ravi was confused about where to open a demat account? But now he has a clear choice of opening account with a discount broker. He can even find the best facilities among discount brokers. He can compare their trading terminals and charting platform and then finally take a call. Zerodha has a robust trading platform called Zerodha Kite and we recommend opening an account with Zerodha. Another broker, RKSV offers a free demo of Upstox Pro, their trading platform. To register your name for trading and Demat account opening click here.