India’s retail investing revolution did not happen overnight. It was built brick by brick over several years, shaped by the convergence of affordable smartphones, high-speed internet, regulatory reforms, and an increasingly financially aware population. At the centre of this transformation are the trading apps that have made stock market participation as simple as ordering food online, and the demat account that serves as the secure digital vault holding every financial asset an investor owns. Together, these two pillars have dismantled the age-old perception that equity investing is a privilege reserved for the wealthy or the financially sophisticated.
The Shift From Physical to Digital in Indian Markets
Before dematerialisation became the norm, investing in Indian equities was a hassle. People used to get physical share certificates as proof of ownership and the process of transfer of ownership involved physically endorsing the certificate, submitting it to a registrar and waiting for weeks for the transfer to reflect in one’s records. With depository institutions like NSDL and CDSL and the mandatory conversion of holdings into electronic script, the hassles of manual share transfer have been virtually eliminated. All equity shares, bonds, government securities, mutual fund units and exchange-traded funds owned by an Indian investor today are in electronic form in some depository.
How a depository account really works
A depository account is where all the securities owned by an investor are stored in electronic form. Through a unique beneficiary owner identification number, a depository account is able to distinguish between different investors. When an investor buys shares on a stock exchange, the shares purchased are credited to his depository account on the settlement date, which is currently the next working day after the trade date in the case of the equity segment. Similarly, shares sold by an investor are debited from his depository account and transferred to the buyer’s repository via the clearing corporation that facilitates settlement of trades.
The account also stores securities in case of bonus issues as well as rights issues and dividend reinvestment plans wherein the new securities are electronically credited to the investor’s repository.
What investors often ignore when it comes to account charges
While new investors often focus only on the brokerage that needs to be paid to a broker for each trade executed, there are other charges that come into play – annual maintenance charges on the investor’s account, brokerage on the sell side (which may be lower than the buy side), dematerialisation charges for any physical certificates that may still remain in the investor’s possession and pledge creation charges. All these charges vary across depository participants who maintain such accounts. While many new age brokers offer zero or minimal annual maintenance charges to woo retail investors, it is best to look at the entire set of charges that apply to one’s particular case before zeroing in on a particular depository participant. Even small charges can add up for active traders.
Most important among the various charges applicable to an account is the securities transaction tax that applies to all buy and sell transactions in the equity and equity derivative segments. Unlike brokerage which may be waived by a broker, STT (securities transaction tax) is a government levy that cannot be avoided. By understanding the entire gamut of charges applicable to one’s trades, an investor can arrive at an idea of what he is actually paying for when it comes to trading in equities.
How to build a long term investing habit with the help of technology
Technology-enabled trading platforms are only as good as the investor who uses them. Ease of access to trading platforms has helped many retail investors build a habit of trading. But it has also helped many others fall victim to the temptation of impulsive trading. It is thus people who make the most use of automated recurring mandate systems provided by such platforms for sticking to their long term investing plans that will benefit the most from the current technological environment.
A habit of evaluating the performance of one’s portfolio in terms of how it is shaping up in relation to one’s financial goals as opposed to how it is doing in comparison to the previous day’s close is what characterises the sophisticated retail investor that Indian markets need more of. Trading platforms that help create such a habit are more likely to serve the long term financial interests of the investor than those that provide live price updates and facilitate one-click trading.
