Demat Account refers to a Dematerialized account.
Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, you need to open a Demat account if you want to buy or sell stocks. So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your Demat account.

Let’s say your portfolio has 100 of Satyam, 200 of IBM and 120 of TCS shares. All these will show in your demat account. So you don’t have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.

Demat Account Popularity In India

Is Demat account a must?

Nowadays, practically all trades have to be settled in dematerialized form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more. So a demat account is a must for trading and investing.

Why Demat Account?

The demat account reduces brokerage charges, makes pledging/hypothecation of shares easier, enables quick ownership of securities on settlement resulting in increased liquidity, avoids confusion in the ownership title of securities, and provides easy receipt of public issue allotments.
It also helps you avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit. Further, it eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also avoid stamp duty (as against 0.5 per cent payable on physical shares), avoid filling up of transfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.

How do I apply for a Demat account?

Most banks are also DP participants, as are many brokers. You can choose your very own DP. o get a list, visit the NSDL and CDSL websites and see who the registered DPs are. broker is separate from a DP. A broker is a member of the Stock Exchange, who buys and sells shares on his behalf and on behalf of his clients.

A DP will just give you an account to hold those shares. ou do not have to take the same DP that your broker takes. You can choose your own.
But many brokers offer special incentives in the form of lower charges for opening demat accounts with their DPs. Get your documents in place. Once you approach your DP, you will be guided through the formalities of opening an account. You must fill up an account opening form and sign an agreement with your DP. The DP will ask for some documents as proof of your identity and address. Check with them what they require. For instance, some may accept a driver's license, others may not.

Here is a broad list (you won't need all of them though):

PAN card
Voter's ID
Passport
Ration card
Driver's license
Photo credit card
Employee ID card
Bank attestation
IT returns
Electricity/ Land line phone bill

While they only ask for photocopies of the documents, they will need the originals for verification.

You will have to submit a passport size photograph on which you sign across.

Useful Links

Wikipedia

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