Are u thinking of investing in share market this year? Or you have decided that you want a part of the Initial public offering which is promises to be big this year. If the answer is yes then this is what you need to do at first.

First, open a Demat account. Before starting you should face some questions. Here are the questions:

What’s the difference between a depository and a depository participant?

A place where the stocks of the investors are held in electronic form is called a depository. And the agents of the depository are called depository participants (DPs). You can think of like a bank. The head office of a bank is like the depository and the branches are like depository participant.In India there are only two depositories, those are the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). There are over a 100 DPs.

What’s a demat account?

Demat refers to dematerialized account. Just like you have to open a account with a bank for saving your money or to make some cheque payments, in the same way you have to open a demat account if you want to purchase shares. So it is same as bank, the only difference is here money is replaced by the number of shares.

If you want to open an account then you have to approach the DPs, to open your demat account. Your portfolio of shares will look like in the demat account: 50 of Infosys, 45 of Reliance, 42 of HLL and 60 of Wipro.

So you do not need to possess any paper or certificate for your ownership of shares or proof of holding those shares. Your demat account is the proof of all the things. And this is done electronically in your account. When you will buy or sell any share you will be able to see that number increases or decreases with the every transactions. If you sell 10 shares or Infosys then your account balance will also show as 40 shares or Infosys (50-10=40). So it is basically like a bank pass book.

Is a demat account a must?

Nowadays all trades have to be settled through demat account. Though market regulator and SEBI ( Securities and Exchange Board of India ) has allowed trades of upto 500 shares to be settled in physical form, but nobody wants physical shares. So Demat account has become must for trading and investing.