Demystifying Demat Accounts for PMS Investments: What You Need

In the fast-moving world of finance today, Portfolio Management Services (PMS) have become the centre of attraction for high-net-worth individuals (HNIs) seeking bespoke wealth management services. However, for investments in PMS to be effective, the investors should first open a demat account and a trading account. Understanding the role and significance of these accounts will help investors decide wisely and enhance portfolio performance.

What do Demat and Trading Account Mean?

A demat account (short for dematerialized account) is an electronic storehouse wherein securities including stocks, bonds, exchange-traded funds (ETFs), and mutual fund units, are held in digital form. It has removed the requirement for physical share certificates, thereby allowing for smooth, easy, and secure trading and investment activity.

Meanwhile, a trading account is used to execute the buying and selling activities of the securities in the stock market. Usually, it does the linking between the demat account and the investor’s bank account. When an investor places a trading order, that is mediated through the trading account, and when the transaction happens, the investor’s demat account will be credited for the bought securities.

Why a Demat Account for PMS Investment?

For all practical purposes, PMS is managed by qualified fund managers who create a portfolio of investments based on the portfolio goals of the different investors. PMS portfolios are individually managed, meaning investments are made in the name of the investor, unlike mutual funds where units are allocated from a pooled corpus

Essentially, PMS being related to equities, a demat account becomes necessary to hold stock and securities in electronic format. On choosing PMS, the demat account gets linked to the portfolio, and then transaction execution, security of holdings, and hassle-free management all come into play.

How to Open a Demat Account for PMS Investments?

A demat account can be opened pretty easily. Below are the steps to follow:

– Choose a Depository Participant (DP):

A DP is an entity that is enrolled with National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL). Usually, DPs are banks, brokerage firms, or financial institutions.

– Fill the Account Opening Form:

Enter all details concerning one’s personal information, financial information, and nominee details.

– Submit Documents:

a) Copy of PAN Card

b) Copy of Aadhaar Card or any valid proof of address

c) Passport-size photographs

d) Details of banks for linking purposes

– In-Person Verification (IPV):

Some DPs may carry out investors’ in-person verification. IPV may be conducted physically or through video-based verification depending on the DP’s onboarding process.

– Sign an Agreement:

After successful verification, the investors sign an agreement that outlines the terms and conditions of the demat account.

– Get Credentials:

After three working days of successful processing, the investor receives details regarding the demat account, including login credentials.

Note: Processing timelines may vary depending on the DP and document verification processes.

A Trading Account Complements PMS Investments

While a demat account is used for holding securities, a trading account is necessary for placing buy and sell orders. Most brokerage firms offer both accounts as a package for investor convenience.

For PMS Investments, fund managers use the investor’s trading account for execution of their buy and sell trades as per their strategy. Hence a well-integrated trading account implies:

• Seamless trade execution
• Access to real-time market data
• Reduced transaction costs
• Better liquidity management

Key Benefits of Holding a Demat Account for PMS Investments

Security and Transparency:

• Holding an electronic asset eliminates the risk of theft, loss, or forgery.
• Investors can monitor their holdings online anytime.

Efficient Portfolio Management:

A demat account enables PMS managers to rebalance their portfolios efficiently, ensuring that the risk-return profile remains optimal.

Faster Settlements:

Unlike physical share certificates, which call for extensive documentation, digital transactions settle almost instantly, and therefore, investors can seize market opportunities. Settlement timeframes follow regulatory guidelines and are typically T+1 or T+2 depending on the exchange rules.

Dividend-and-Corporate-Action-Related Benefits:

Investors automatically receive dividends, bonuses, and rights issues into their demat account without any manual intervention.

Considerations When Choosing a Broker for Your Demat and Trading Account

Choosing a trustworthy broker is vital for a smooth PMS investment experience. Here are what to consider:

• Brokerage Charges: Go with a service provider that has competitive rates.

• Technology & Interface: Look for a platform that is mobile-and-web-friendly.

• Customer Support: Trustworthy customer service means problems get solved on time.

• Reputation & Reviews: Always check online reviews and testimonials before you settle on one.

Conclusion

Opening demat accounts is the first step to PMS investment. These accounts are the bedrock of streamlined and safe investing; they allow investors to benefit from management on their behalf while keeping tabs on portfolio positions in real time and facilitating effortless trade execution. A well-run demat and trading account can enhance your investing experience depending on the strategy and execution.