A demat account is needed to hold and trade in electronic securities. It eliminates the whole process of sharing physical certificates whenever anyone trades. While you can set up a demat account rather simply, you may make common mistakes during the process. Avoiding those mistakes can ensure a fine and secure process in financial markets.
1. Lack of knowledge about the purpose of a demat account:
Before you open a demat account, find out what it is for. It does not earn interest or any other returns on idle balances. This can hold financial securities like shares, bonds, and mutual fund units in electronic form. If not, then you might hold false expectations about the workings and benefits of the account.
2. Selecting a Depository Participant on Impulse
To open a demat account, you must approach a depository participant (DP) who acts as an intermediary between you and the depository. Not researching the DP’s fees, service quality, and usability of the online platform will often not satisfy you in one way or another. Different DPs may charge different amounts for account opening fees, annual maintenance charges, and transaction fees. Choosing a DP purely based on convenience without comparing such factors may not align with your trading or investment needs.
3. Ignoring the Documentation Obligations
You commonly make this mistake while applying for a demat account: submitting the wrong documents. Many DPs will require you to produce a list of various documentation items, which would include proof of identity, address proof, a PAN card, and a photograph. Sometimes, proof of income will also be needed, especially if you want to invest in derivatives. Incomplete or incorrect documentation can cause your application to either take longer than expected or be outrightly rejected.
4. Ignoring KYC Compliance
You must comply with KYC requirements before opening a demat account. Often, you may not know your KYC status while applying under this information, or you might even miss the KYC process. This will cause trouble in opening the account or linking the account with the trading platform. You must also update your KYC to keep optimal operations.
5. Not Reading the Terms and Conditions
Many people apply for a demat account without even reading the terms and conditions. This might lead to misunderstanding the charges regarding services that will be offered to your account and overall operations within that account. Reading the terms will assist you in ascertaining what rights and obligations accompany maintaining a demat account.
6. Selecting the Wrong Type of Account
Some people open the wrong type of account while opening a demat account. The various types of accounts include individual, joint, corporate, and NRI accounts. If you end up with the wrong type, you will then have to open that account again or go through extra processes. Before opening an account, you should also be clear on the right category applicable.
7. Failing to Link the Demat Account with a Trading Account
A demat account on its own does not permit you to buy and sell securities. To enable you to trade on the stock exchanges, you must link the demat account with the trading account. Not linking both accounts means that you cannot place any buy or sell orders.
8. Ignoring the Account Maintenance Charges
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9. Keeping Outdated Contact Information
As a result, you should update your mobile number or email address in the record books whenever you change them due to updates in your demat account. Many times, such failures may cause you to miss alerts regarding transactions or communication from the DP, which over time will build into operational or security issues.
10. Not Keeping an Eye on the Demat Account
Infrequent monitoring can result in unnoticed transactions, charges, or discrepancies. Keeping track of holdings with transaction history and account statements significantly prevents misuse and aids in record keeping. Regularly reviewing your accounts helps you keep matters in control.
Conclusion
Opening a demat account may seem simple, but missing crucial steps can turn out to be a headache at some point in the future. It is equally essential for you to know and keep an eye on every point in the process of opening an account for it to become efficient and reliable.
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