A stock broker is a person or a firm that trades on its clients behalf, you tell them what you want to invest in and they will issue the buy or sell order. Some stock brokers also give out financial advice also.
It wasn’t too long ago and investing was very expensive because you had to go through a full service broker which would give you advice on what to do and would charge you a hefty fee for it.
There are three different types of stock brokers:
Full Service Broker : A full-service broker can provide a bunch of services such as investment research advice, tax planning and retirement planning.
Discount Broker : A discount broker let’s you buy and sell stocks at a low rate but doesn’t provide any investment advice.
Direct-Access Broker : A direct access broker lets you trade directly with the electronic communication networks (ECN’s) so you can trade faster. Active traders such as day traders tend to use Direct Access Brokers.
DEMAT ACCOUNT
Demat refers to a dematerialised account.
Today the company is under obligation to offer the securities in demat mode, there is no physical delivery.
You need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application.
Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, now-a-days, you must need to open a demat account if you want to buy or sell stocks.
So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your demat account. Let’s say your portfolio of shares looks like this: 15 of Reliance Energy, 20 of Unitech, 20 of Ranbaxy and 10 of Renuka Sugar. All these will show in your demat account. So you don’t have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.
Once you approach your DP, you will be guided through the formalities of opening an account.
You must fill up an account opening form and sign an agreement with your DP.
The DP will ask for some documents as proof of your identity and address.
Check with them what they require. For instance, some may accept driving licence, others may not.
Here is a broad list (you won’t need all of them though):
PAN card Photo credit card
Voter’s ID Employee ID card
Passport Bank attestation
Ration card IT returns
Driving licence Electricity/Landline phone bill
While they only ask for photocopies of the documents, they will need the originals for verification.
You will have to submit a passport size photograph on which you sign across.
TO OPEN AN ACCOUNT
When opening an account with a bank, you need a minimum balance. Not so with a demat account. A demat account can be opened with no balance of shares. And there is no minimum balance to be maintained either. You can have a zero balance in your account.
EXPENSES
The charges for account opening, annual account maintenance fees and transaction charges vary between DPs
NOMINATION
You can nominate whoever you like by filling up the nomination details in the account opening form.
This is to enable the nominee to receive the securities after the death of the holder of the demat account.
When you open an account, the DP will allot a unique BO ID (Beneficial Owner Identification) Number, which you need to quote for all future transactions.
If you want to sell your shares, you need to place an order with your broker and give a ‘Delivery Instruction’ to your DP.
The DP will debit your account with the number of shares sold. You will receive the payment from your broker.
If you want to buy shares, inform your broker about your Depository Account Number, so that the shares bought are credited into your account.
