How can I buy Shares without Demat Account?

Can you buy shares without a demat account? The simple answer is no. This is because share certificates are no longer issued in the paper form. In 1996, The Securities and Exchange Board of India (SEBI) made it mandatory for all investors to open Demat Accounts if they wished to continue investing in the stock market. As such, the only way you can continue share trading is by opening a Demat Account.

Dematerialisation was introduced as a means to streamline stock transactions. Before that, there were only paper share certificates. Huge amounts of paperwork had to be completed, whenever stocks were bought and sold. As the stock markets grew in size, the paperwork increased with it. This led to errors and frauds, and the authorities decided the only way forward was the dematerialisation (`demat’) of shares i.e. conversion of physical share certificates to the electronic or digital form. Today, shares can be traded only in the Demat form.

How does Demat work?

Demat accounts are provided by entities such as brokerage firms and bank subsidiaries or group companies collectively known as Depository Participants. These DPs serve as the intermediaries between the customer and the two central depositories in India – The Central Depository Services Ltd (CDSL) and The National Securities Depository Ltd (NSDL). Opening a Demat Account with one of the DPs enables you to hold your shares in the electronic format.

How To Open A Demat Account?

As mentioned above, DPs include bank subsidiaries, stockbroking firms and non-banking financial firms (NBFCs). You can choose any one of these entities to open your Demat Account. Few banks and stock brokers also offer 3-in-1 accounts that combine banking, trading and Demat services. Stockbrokers, too, can open a Demat Account for you.

To open a Demat Account, you need to fill the demat opening form, and provide proof of identity and residence, as well as Aadhaar and PAN card as per the official valid documents list. Demat Accounts can be opened online through the DP’s website or offline by visiting the DP’s office/branch.

Additional Read: Documents Required To Open A Demat Account

Demat Charges Explained

Most DPs waive account opening charges. There are two other kinds of charges involved in a Demat Account. One is annual maintenance charge, which can vary between ₹200 and ₹800 a year. Then there are transaction charges, which is a small percentage of the transaction. If you are not doing too many transactions on your Demat Account, you can get a basic services demat account, for which there are no annual maintenance charges for holdings below ₹50,000.

How to buy shares without demat account

Difference Between Trading Account And Demat Account

Sometimes people are confused between a Demat Account and Trading Account. It’s not enough to get a Demat Account, you need a Trading Account as well. While the Demat Account holds your securities in the digital format, the Trading Account enables you to conduct transactions like buying and selling securities. As such, you cannot have a Trading Account without a Demat Account. Banks and brokers offer both Trading and Demat Accounts.

Additional Read: How to Open Demat and Trading Account?

Apart from holding shares, Demat Accounts are also essential if you want to hold bonds, debentures and other such money market instruments.

Conclusion

It isn’t possible to trade shares or other securities without a Demat Account. It is mandated by the SEBI to have a Demat Account to be able to trade in securities. While you can buy IPO shares without a Demat Account, you still need to hold a Demat Account to sell it.

FAQs:

   1.  How can I invest in stock market without demat?

You cannot trade in the stock market without having a Demat Account. The SEBI has mandated that all trading of securities need to happen via Demat and Trading Accounts.

   2.  Can I buy shares without a Trading & Demat account?

No, it isn’t possible to buy shares without a Trading and Demat Account. Physical share certificates are no longer issued.

   3.  Can I buy shares/stocks directly?

You cannot directly trade in shares and stocks on the stock exchange. You have to go through registered brokers to trade in the stock market. Brokers may be banks or brokerage companies. You have to open a Trading and Demat Account with a registered broker. You can then trade in shares using these accounts.

   4.  What happens if you don't use Demat?

If you don’t use a Demat Account for a while, it will then become dormant. You need to reactivate a dormant Demat Account if you want to use it again. You may also need to pay reactivation fees. To keep your Demat Account active, you need to transact in the market from time to time.  

   5.  Can I start trading without a Demat Account?

Technically, you only need a Trading Account to trade in shares and other securities. However, a Demat Account is where these securities are held. Without a Demat Account, you would have no place to store your securities. So, in the practical sense, you need both a Trading and a Demat Account to trade in securities in the stock market.

Disclaimer: The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.