The very first step to start investing in the financial market is opening a Demat account. In simple terms, it is just like a bank account for investors to keep their shares and securities. Earlier investors could possess physical shares but after SEBI passed a regulation in the year 1996, it has become mandatory for investors to possess a Demat Account.
What Is The Role Of A Demat Account?
Investors need a Demat account to invest in stocks, mutual funds, bonds, exchange-traded funds (ETFs), securities, and currency through a Demat account. Not only does a Demat account help in investing.
It helps to hold your stock and securities in an electronic format. So, it is also known as a Dematerialized account. As holding physical shares involves risk, it is safe to keep your shares in a Demat account. Further, it helps to save a lot of paperwork during the transfer of shares.
Best Demat Account In India
In India, there are many brokers offering free AMC Demat account opening for investors. To understand which is the best Demat account for you, you have to first understand the types of brokers and the service they provide to traders. There are two types of brokers:
Types of Brokers
Full-Service Brokers: These brokers provide a trading platform to investors along with additional services to them. Research reports, market advisory, customer support, real-time market updates are some of the additional services offered by them.
Discount Brokers: These brokers provide only a trading platform to investors. They provide no additional services to them.
If you are a new investor, it is best to open a free Demat account with a Full-service broker. But, if you only want to trade and need no additional support you can invest with a Discount broker.
The advantage of a discount broker is that you can save brokerage charges as it is comparatively lower than a full-service broker.
Demat Account Opening Charges
Investors can opt to open a free Demat account with a full-service broker or a discount broker according to their convenience. But after opening a Demat account, investors have to pay a Demat account maintenance fee known as AMC charges.
The AMC charges (Annual Maintenance Charges) can be paid annually, quarterly, or one-time payment depending on the broker’s policy.
Other charges include brokerage charges for buy/sell orders (it differs from one segment to another), fund transfer charges (for using payment gateway), DP charges (Depository participant charges (on Intraday trades).
Free AMC Demat Account (Myth vs Reality)
Though brokers can allow free AMC Demat account opening for investors, allowing a free AMC Demat account opening is a myth. It is a common bait that brokers use to attract new investors. So if a broker is allowing a free AMC charges Demat account, it is either they will charge it after the first year of account opening or they will charge it as a one-time payment to maintain the Demat account.
Conclusion
Free Demat Account opening with no annual charges is a common marketing bait. So before opening a Demat account it’s best to understand from your broker about AMC charges and other Demat account charges. Remember, the very first step to investing in the financial market is to choose the best Demat account broker that suits your investment needs and that provides clear communication about their policies.