Nice one to read before opening demat account...

Demat services – ‘Bank’ versus ‘Brokerage house’
With every bank and broking firm queuing up to provide demat and trading services, selecting the most appropriate Depository Participant (DP) can be quite a task. Here’s an analysis to bail you out of the confusion…
With an increased use of high end technology and the convergence of multiple platforms, buying and selling shares and undertaking other investments has become swift and secure. The introduction of online trading and dematerialization of shares has changed the face of investing in stocks. Let’s analyze the pros and cons associated with having a demat account with a bank, in comparison to a brokerage house. Three way integration provided by banks Banks offer a three-in-one account, namely, a savings account, demat account and an online trading account. All these three accounts ensure you a completely paperless mechanism for trading and to facilitate the smooth transfer of funds to and from your bank account. The minimum balance to be maintained in these accounts is comparatively low or at times, even a zero balance account is offered. Banks charge brokerage in the range of 0.5 per cent to 0.7 per cent, subject to a minimum brokerage amount, excluding the applicable Securities Transaction Tax (STT) and service tax. These rates are negotiable for an investor who generates higher volumes of trades. How Broking firms fare When you open an account with a brokerage house, they provide you with a demat account and a trading account. The trading account is then linked with a particular bank (with whom your broker has a tie up with) for transfer of funds. The brokerage structure is more competitive than banks. The minimum delivery based brokerage can be as low as 0.3 per cent and goes down significantly with a spurt in trading volumes. In addition to this, there is no minimum fixed brokerage. You need to pay brokerage only on the trades undertaken. Banks offer security Demat accounts with banks are much more secure than those provided by lesser-known brokerage houses. There have been instances in the past when the markets have witnessed a sharp correction and many brokers have gone bust, failing to meet their margin requirements and this has forced them to shut shop. Opening a demat account with a bank gives you more options to choose from when funds need to be transferred to the trading account, as most of the banks allow online transfers of funds. However, in the case of a brokerage house, transfer of funds is not always online and can take anything between one to three days. Broking firms score on charges The cost rises considerably if trading is done below a certain number of shares or below a certain amount, with a bank. Another aspect is the quality of equity research reports provided by the banks and broking firms. Short-term investment calls and trading tips provided by the latter are perceived to be far more superior to the same services rendered by banks. Take your call Depending on your priorities, you can select your demat provider. If safety is your prime concern, you will be better off with a bank even if it means paying slightly higher charges. However, if you can meticulously keep an account of your exposure limit utilizations, interest charged thereon and ultimate benefits accruing out of such exposure, opening an account with a brokerages house could be more rewarding. - Banks provide a three way integrated trading, demat and saving bank account to facilitate paperless trading and ease in transfer of funds. - The brokerage and pricing structure is more competitive from a broking firm than from banks. - Demat accounts with banks are much more secure than those provided by lesser-known brokerage houses. - While both have their set of advantages, ascertain your priorities before you choose between a bank and a brokerage house for your demat needs.

Source: Yourmoney (Times of India, Mumbai)