A demat account is a frequently used word in the stock market, and beginners are bound to have plenty of questions, such as its meaning, functions, how to open a Demat account, its charges, etc. Here is the key information about a demat account.
Demat Account Meaning
A Demat account is an online repository to keep your financial holdings safely in the electronic format. The primary function of a demat account is to hold various financial securities that an investor holds in the stock market. It makes the investing process more accessible than transactions in the outcry system.
Why have a Demat account?
Demat account and a trading account are mandatory accounts to invest in the stock market as the stock market has adopted a complete online trading system. Following SEBI’s guidelines, every investor must have a demat account.
How it works
Many investors call demat accounts a sophisticated version of a savings account as its working system is similar to a savings account but with a different product.
- You deposit and withdraw your money in your bank savings account, and your account gets credited and debited accordingly. In the same way, your demat account gets debited or credited with your financial securities.
- You can open a demat account without owning any shares or other financial securities.
How to open a demat account
Benefits of a demat account include reduced cost of investing with minimal paperwork. To take services of a demat account, you can connect to a depository participant/stock broker registered with any of the national depositories, the NSDL or the CDSL. Following are the steps involved to open a demat account online:
- Approach a Depository Participant. It can be a brokerage firm/an individual/a bank/financial institution. Access the online application form and fill it up with the personal details it requires.
- Keep your documents’ soft copies as well as in original with you. These are identity proof, address proof, PAN card, income proof, passport size photo, and e-sign. Upload the soft copies and submit your form.
- The broker’s representative will call you for a verification process and may ask for showing original documents.
- After a successful verification call, you will need to sign the agreement consisting of the services charges, rights and duties of investors and DP’s.
- Finally, the broker will provide you with your unique account number, user ID and password to log in to your online demat account.
With your demat account, you are ready to enter the investing world.
Growing Popularity Facts
Indian investors have shifted their interest from traditional investment products to opportunities in the stock markets such as real estate, gold, mutual fund units, equities, and complex ones – commodities, exchange-traded funds (ETFs), and derivatives.
Demat accounts are getting more popular as each year passes. Currently, more than 40 million accounts are active in India. As per the NSE data, 99.9% of transactions take place online through a demat account.
The Facilities with a Demat Account
- Safe and secured securities
Your demat accounts store different types of financial securities that you own, like bonds, mutual funds, exchange-traded funds, stocks, government securities etc., online safely and securely. You need not be tensed due to risks like damages, bad delivery, delays, thefts etc., of securities that had been a big issue for investors in the outcry trading system.
- Easily accessible securities
You can easily access the stock market and financial securities at the comfort level of your home. You can store, access, track your securities from anywhere at any time on your smartphones and laptops.
- Accepts corporate benefits
Dividends, interest, bonuses, stock splits, right issues, etc., are the benefits that an investor gets from a company. Demat account allows auto-credit of such corporate benefits.
- Fast share transfer process
The simplified online trading process has reduced the time involved in share transfer processing. Whenever you buy or sell securities, it gets debited or credited and recorded in your demat account quickly, unlike the old lengthy process of physical transfer of shares.
Thus, you can start your investing journey with safe demat accounts.
