How Do I Add A Nominee In My Demat Account

Posted by  Fintra , updated 2022-03-30

One of the few areas where one can invest and grow their money is by investing in securities. Technology along with digitalisation has greatly transformed how everyone works and lives. Money-making activities have changed vastly, stock exchanges have evolved, and stock trading has advanced from physical share certificates and hard copy ledgers to dematerialised or Demat accounts. Investors open Demat accounts when they are registering with the investment broker or sub-broker. Such accounts are preferred for trading, buying and selling stocks, and they enable us to do electronic settlements. Demat accounts have a nomination feature as well. As per the Securities and Exchange Board of India (SEBI) laws, mostly every shareholder should have this account to trade in stocks. Without having a legitimate Demat account, one cannot trade in stocks.

In this blog, Fintra will highlight the vital details related to Demat accounts, its nomination feature, and how to add a nominee to a Demat account. The topics we'll cover are as follows:

1. The History Of Dematerialisation History
2. Benefits Of Dematerialisation
3. How Does A Demat Account Function?
4. Impacts Of Having A Demat Account Nominee
5. How To Add A Nominee To A Demat Account?
6. The Vital Factors To Consider When Adding A Nominee In Demat Account
7. How To Open A Demat Account 

Describing in simple terms, Demat or Dematerialization refers to the system of holding or keeping physical shares and securities in electronic forms. Demat accounts are necessary for holding shares and to make the process of trading even easier. Without such an account or trading account, investors can neither purchase, sell nor hold shares.

The History Of Dematerialisation History

One of the key features of understanding the stock market and the art and science of investing is by first grasping the concept of dematerialisation.

Since the establishment of the Bombay Stock Exchange (BSE) in 1875, traders used to holler out the stock's prices they desired to buy and sell. The funds would then be exchanged through physical receipts known as certificates. This process resulted in heavy paperwork, which took lots of time, and this lengthy paper-based process also would delay the settlements as both buyers and sellers had to deliver the certificates to begin the transfer process. In an attempt to counter this and to take the advantage of electronic trading, in 1996 the process of dematerialisation of shares was initiated. Physical certificates were now getting converted into securities of equivalent numbers in electronic form and directly were credited to the investor’s Demat accounts. This can be considered as the advent of the Demat way of trading.

Benefits Of Dematerialisation

Dematerialisation has several benefits which are not known to all, and some of these benefits are explained below:

• Common Bank: Along with assisting in trading stocks, dematerialisation also works for debt instruments such as bonds and mutual funds. In a single Demat account, an investor can hold all its investments.
• Automatic Updates: Despite being the common account for all securities transactions, one doesn't have to provide its details whenever dealing with a firm. An individual's Demat account represents it and has all the required information concerning the transaction.
• Odd-Lot Problem Resolved: In resolving the settlements, this type of problem was a huge obstacle as shares were sold in lots. Buyers and sellers couldn't transact a single and/or odd number of securities. Thus, with the invention of Demat accounts, it has solved this problem, investors can now trade any number of shares they desire.
• Delivery Risks: With no paperwork involved, the risks of fake shares, theft, and/or wrong deliveries have even been eliminated. Perhaps this was one of the greatest benefits of the electronic trading process because the system will automatically always credit securities in the right Demat account, regardless of the number and type of shares. This is also applicable to other share transactions like stock splits and stock bonuses.
• Cost Reduction: Demat accounts don't require stamp duty for securities; thus, this has caused the cost to reduce significantly. In the earlier times, stamp duty was around 0.5% for each stock, which can now be avoided completely due to dematerialisation.
• Easy to Hold: Paper certificates were and are always vulnerable to various types of physical damage such as fire, water damage, pests, etc. Even minor damages could cost an individual a fortune. However, with the creation of Demat accounts, the individual's Demat account company bears the responsibility of safeguarding and maintaining an individual's account. This has proved to be the best way to hold securities. Demat accounts also provide a nomination facility in case the account holder passes away. The securities and their authority automatically get transferred to the nominee.

How Does A Demat Account Function?

As described above, Demat accounts hold all the investor's shares and investments in an electronic or dematerialised form. These accounts even hold the government securities, mutual funds, bonds, shares, and Exchange Traded Funds (ETFs). Thus, it is vital to understand a few bodies and procedures to comprehend the complete functioning of a Demat account. The functioning of a Demat account is explained below:

• Central Depository: India has two major depositories: Central Depository of Securities Ltd. (CDSL) and National Depository of Securities Ltd. (NDSL). Both of them hold the details of one's account on its behalf. This works similar to a bank.
• Unique ID: For identification, every Demat account has a unique verification number. This ID comes in aid in various situations, it can be used for transactions, or be used for the stock exchange to help companies identify and credit the securities to an investor's account.
• Depository Participants: Depositories can only be accessed through depository participants (DPs). DPs act as intermediaries between the CDSL and the investor. DPs can be brokers, banks, or financial institutions that are authorised to offer Demat services.
• Portfolio Holding: Demat account holds all holdings, and every time an investor checks it, it can view their account status with all its details. This is because the account gets automatically updated each time the investor transacts, buys or sells securities.

Impacts Of Having A Demat Account Nominee

When a Demat account holder passes away, it tends to become tormenting for its heirs to claim the ownership of the securities owned by the deceased person. For this reason, it is essential to have a nominee to the account. Registering a nomination can at times eliminate the requirement for documents such as a will, a succession certificate for the transmission certificates, etc.

In fact, in the presence of a nominee, even the transmission of shares turns out to be a lot easier. The nominees don't need to go to the court or collect a No Objection Certificate and affidavits from the courts. However, if a nominee hasn't been selected, then there are chances that the family members may not receive the shares or funds. In fact, as per the reports from RBI, there are many incidents where unclaimed deposits are still lying in the banks because these accounts belong to those who either have not claimed the funds or the account holder has deceased or haven't filed nomination details.

If a single Demat account holder passes away, leaving a nominee, then the process of share transmission gets simple. The nominee just has to submit a duly filled transmission form along with the certified copy of the deceased person’s death certificate that a Gazetted Officer has attested.

How To Add A Nominee To A Demat Account?

Although it's not mandatory to add a nominee to the Demat account, it's advisable to do so. As per the laws in India, an account beneficiary can have maximum three nominees attached to the same Demat account. If there's a single nominee, then all the securities get transferred to his/her account. In case there are multiple nominees, the beneficiary of the account decides if the securities in his/her account have to be distributed on a pro-rata basis. It can even assign a fixed percentage to the individual nominee, and even specifically assign securities to individual nominees. Do note that nominees can be added, amended, or removed anytime by the beneficiary. Adding a nominee is very simple, one just has to add their names in the account opening form submitted to the individual's chosen broker. Even later on, nominees can be added, amended, and/or deleted by simply submitting an Annexure 1A form to the broker.

The Vital Factors To Consider When Adding A Nominee In Demat Account

1. Only an individual who holds a beneficiary account either as a single holder or a joint account holder can provide a nominee. Non-individuals like body corporate, society, partnership firm, Karta of HUF, or a power of attorney holder aren't permitted to nominate.
2. The nomination form has to be signed by all account holders if the beneficiary account is jointly held. In the case of cancellation of nomination by a jointly held account, all account holders have to sign the nomination form.
3. A minor account holder can't assign a nominee, but only by an adult beneficiary, a minor can be assigned as a nominee.
4. If the beneficiary is assigning a minor as its nominee, he/she has to provide the name and address of the minor's guardian.
5. The nominee can't be society, body corporate, a trust, partnership firm, Karta of HUF, or a power of attorney holder. 

How To Open A Demat Account 

One can open a Demat account even though it doesn't have any shares and there is no minimum balance required. The steps involved in opening a Demat account is to choose a DP, fill out the account opening form, and submit the documents. Do bear in mind that it's a compulsory requirement to have a PAN Card or Aadhaar Card for opening a Demat account. The rest of the steps have been explained below:

• Once the form has been submitted, a copy of rules and regulations, terms of the agreement, and the charges one will incur will be sent to the individual.
• In-person verification is necessary, hence, a member of the DP staff will contact the individual for verifying the details provided in the account opening form.
• After the verification, the DP person provides the account number or client ID. The individual may also check these details by checking its account details online.
• Do note that an annual maintenance fee has to be paid for a Demat account. This annual maintenance fee covers the account transaction charges, and the fee gets levied for debiting securities to and from the account every month. The charges are subject to the choice of the DP. A few DPs set their charges as per the amount of the transaction and others charge a flat fee that will be the same for every transaction. Depending on the type of transaction (buying or selling) the fee can also vary. At times, there can be a fee for converting the share into physical form or vice-versa.

To know how to close a Demat account, please click here.

Conclusion

Through the dematerialisation of securities, investors can now safely store shares and securities in their Demat accounts. If one has to imagine, the process is just like having funds in a bank account, though no physical piece of paper. Just as opening a bank account requires a nominee, it is essential to assign a Demat account nominee and relish the benefits of having such an account.