Everything around us keeps on changing and evolving day by day – like what we eat to what we wear, to the way we live. Change is the only constant. Similarly, is the Change witnessed in the banking and financial sector, DIGITALIZATION. With time, the ways of making money, trading/ investments have also witnessed a huge leapfrog from paper possessions to digital assets.
Nepal, as in the case, has been witnessing massive changes towards digitalization in its economic activities, with taxpayers allowed to file and pay taxes through an online medium, easily transfer funds from one bank account to another electronically, introductions of digital wallets, QR payments and so is in the case of capital markets. The capital market in Nepal too has seen a tremendous leap with the introduction of electronic medium of transacting in the stock exchange. With the introduction of demat account made mandatory for investments in primary as well as the secondary market, let us first understand what a demat account is.
Do you have a bank account? Most of you would say YES – maybe you even hold multiple bank accounts. A demat account is something like a bank account, the only difference is instead of money held in your bank account, demat account hold your securities – a form of shares, bonds, or debentures.
Demat Account and when do you need it?
Let us assume, you have possession of physical shares, and would want to trade in the secondary market then, in that case, you can simply open a Demat account and dematerialize the shares in an electronic form. Electronic settlements of all trades are done through a Demat Account. Likewise, in a bank account where all your transactions are recorded in a passbook, a Demat Account records all the debit and credit transactions of your investments. Thus, a Demat account acts as a custodian of your securities.
To buy and sell securities in Nepal Stock Exchange, it is necessary for you, as an investor, to open a Demat account with a Depository Participant (DP).
Depository, Depository Participants and Demat Account. How do they work?
A depository is an organization or an institution that holds your securities electronically and assists in trading of those securities. Central Depository Services and Clearing Limited (CDSC) acts as a depository in Nepal registered with Securities Board of Nepal (SEBON).
Depository Participants (DP) act as agents between depository and the investors. DP facilitates the investors to open a demat account. Any services of a depository, needs to be initiated through a DP like to perform a transaction with the shares, the DP shall communicate with the depository and your Demat account will be operated accordingly.
Fees associated with demat account.
All the DPs have a fixed charge of NRs. 150.00 at the time of account opening and a recurring charge (Annual Maintenance Charge) of NRs. 100.00 to be paid at the end of every Nepali fiscal year. There are also other charges such as transaction fee, pledge charges and Meroshare (an online platform to view and operate your demat account) subscription charges.
Benefits of Demat Account.
How do you open a demat account?
You can open a Demat account with a registered depository participant (DP). The account usually takes one working day to be operational.
Documentation Required for Individual Demat Account Opening
- Nepalese Citizenship
- Recent Passport size photograph
- Birth Certificate and Guardian Citizenship (In case of minor)
- Bank Account Details
Opening a Demat Account
- Investors can obtain the form to open a Demat Account through Depository Participants.
- The account opening form needs to be filled and submitted along with the required documents and a recent Passport Size photograph. Original documents are required for verification.
- A member of the DP performs an in-person verification of the applicant.
- Post-Processing of the application, the Investor is provided with a 16-digit Demat Account Number. (8-digit DP Identification Number, 8-digit Client Identification Number)