A demat account holds securities in electronic form. It is similar to a bank account but for shares, mutual fund units, bonds, and government securities. SEBI made dematerialisation mandatory for most listed securities in India by the early 2000s — physical share certificates are no longer permitted for IPO allotments.
There are two depositories in India: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). Every demat account is held with one of these two depositories, accessed through a Depository Participant (DP) — typically a broker like Zerodha, Upstox, ICICI Direct, or HDFC Securities. The DP ID and Client ID together uniquely identify an investor's demat account.
To apply for an IPO, an applicant needs both a demat account and a linked trading account with a SEBI-registered broker. Allotted shares are credited directly to the demat account on the listing date. Without a demat account, an IPO application cannot be processed, even if the applicant has the funds and a verified PAN.