Entering the world of the stock market can feel like learning a new language. To navigate the landscape effectively, you need more than just a trading account. Understanding the specific terminology used by brokers and exchanges is essential for making informed decisions.
When you open Demat account, you will encounter several terms frequently. Here are the 10 most important ones every beginner should know.
1. Dematerialization
This is the process of converting physical share certificates into electronic form. In the modern era, almost all shares are issued and traded in this “dematerialized” or digital format, ensuring safety and speed.
2. Depository (NSDL & CDSL)
A depository is a central organization that acts like a bank for your securities. In India, there are two: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). They hold your shares in electronic form on behalf of your broker.
3. Depository Participant (DP)
A DP is the intermediary between the investor and the depository. Your stockbroker acts as your DP, providing the interface you use to buy, sell, and view your holdings.
4. BOID (Beneficiary Owner ID)
Every Demat account has a unique 16-digit identification number known as the BOID. It is essentially your account number in the depository system. You will need this for activities like applying for IPOs or transferring shares.
5. Equity Delivery
When you buy shares and hold them for more than one day, it is called a “delivery” trade. These shares are moved from the exchange into your Demat account for long-term holding.
6. Intraday Trading
This refers to buying and selling a security within the same trading day. Since the positions are closed before the market shuts, these shares never actually enter your Demat account.
7. T+1 Settlement
India follows a $T+1$ settlement cycle. This means if you buy or sell shares today (Trade day), the actual transfer of shares to your Demat account or funds to your bank account happens by the next working day ($T+1$).
8. ISIN (International Securities Identification Number)
Every listed security has a unique 12-digit alphanumeric code called an ISIN. This code is used to identify a specific stock or bond across different platforms and countries, ensuring there is no confusion between similar-sounding companies.
9. AMC (Annual Maintenance Charge)
This is a recurring fee charged by your broker to keep your Demat account active. It covers the administrative costs of maintaining your records with the depository.
10. DIS (Delivery Instruction Slip)
A DIS is the equivalent of a chequebook for your Demat account. It is a physical or electronic instruction given to your broker to transfer shares from your account to another. While most transfers are now digital (e-DIS), the term remains fundamental to share movements.
Why These Terms Matter
Understanding these terms helps you interpret your holding statements and transaction reports accurately. It also ensures that when you interact with your broker’s support team or navigate your dashboard, you can communicate effectively and avoid costly errors.
Conclusion
Starting your investment journey is a significant milestone. By mastering these ten basic terms, you build a solid foundation that allows you to move beyond the technicalities of account management and focus on the strategic aspects of building your portfolio.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.