There are certain do’s and don’ts for all processes that investors may undertake, from opening a Demat account to investing in the share market. When you open a Demat account online, there are specific things you should be wary about as an investor.
Avoiding mistakes while opening accounts online can save you a lot of potential trouble you may face later. This article makes you aware of seven common mistakes investors are prone to making before or while opening a Demat account online.
7 Common Mistakes to Avoid Before You Open a Demat Account
- The Wrong Broker
Before you open a Demat account, and this is an online process these days, make sure you avoid the mistake of choosing the wrong broker or depository participant (DP). Of course, there is no such thing as a ‘wrong’ broker, but you must take care to select a broker or a DP that matches your requirements as an investor.
These days, brokers offer many services along with just enabling trading and investing activities. It is important to find out about the technology used in terms of their services and trading transactions. Different brokerage platforms also offer different services so make sure you have chosen your DP based on your needs.
- The Error in the Type of Demat Account Chosen
Before investors open a Demat account online, especially new investors, they may not know that there are types of Demat accounts they can open.
There are regular Demat accounts that are suitable for certain investors who want affordable Demat account charges in terms of maintenance costs and other fees.
These are basic services Demat accounts (BSDA) and they can be compared to other types of Demat accounts that offer more services but charge investors more as well.
- Making the Mistake of Not Opening Linked Accounts
These days, when investors open a Demat account online, they can also open a trading account online that is linked with a Demat account.
Most brokerages offer these facilities but there may be certain banks that act as DPs and only offer you a Demat account without a linked trading account.
A trading account facilitates the activity of buying and selling securities (trading transactions) and makes trading and investing a seamless process.
In turn, a Demat account and a trading account may be linked to your bank account for the debit and credit of funds while investing in securities.
- Not Being Aware of Demat Account Charges
While many brokerages offer you similar facilities and services, all are not the same in terms of the fees they levy. There are certain charges you must consider before you open a Demat account online.
Fees include those for opening an account (in some cases), annual charges for maintenance of accounts, dematerialisation charges, transaction costs, and more. Being aware of these charges is a must before you open a Demat account.
- Not Knowing About Security Measures
Whether you open a trading account online or a Demat account online, you should be alert about what the brokerage you choose for opening the account offers in terms of security. As these accounts are all online, they must be prevented from any potential fraudulent activity.
- Being Unaware of the Use of the POA
Before you open a Demat account online, the Power of Attorney (POA) is a relevant document you should be aware of. It is a document that gives your broker the authority to operate any Demat account on behalf of an investor.
It is essentially used for convenience so that investors may undertake transactions without the hassle of giving instructions to the broker each time they require a transaction to be undertaken. Nonetheless, a POA can potentially be misused so it should only be enacted with a reputed and reliable broker.
- Not Reading Terms and Conditions Carefully
To open a Demat account is easy when it is done online, but before you jump in to do so, you must take time and effort to read all the terms and conditions related to your brokerage in terms of opening and maintaining accounts.
More often than not, when investors miss out on the fine print, they may come across issues later. The terms and conditions are contained in a document that investors must sign while opening accounts. This is a legal document stipulating charges, besides the rights and obligations of brokers, investors, and other parties involved.
Mistakes Can Cost You Later
Opening a Demat account is a vital step if you wish to invest in securities, especially in the stock market. However, instead of diving in to open a Demat account, you may consider certain mistakes that you can avoid. Something to remember is to always open accounts based on your requirements and goals.