We've all heard of bank savings accounts. It provides simple access to our cash while protecting our hard earned money from theft and mismanagement. Likewise, a Demat account has a similar function, but for stock investing.
A Demat Account is an account used to store shares and assets in electronic form. The word “Demat” in Demat account is an abbreviation for dematerialized. The goal of creating a Demat account is to keep shares that have been purchased or dematerialized (changed from physical to digital shares), making online share trading easier for consumers.
Demat account has undergone many improvements over the years. It stores or holds financial securities like bonds and stocks in an electronic format. Demat accounts ease the trading experience by letting the investor buy and sell securities without paperwork. The Demat account offers many benefits and features to investors.
A Demat Account is now required if you wish to trade/invest in the stock market (NSE & BSE) or other securities. Your Demat Account number is required for electronic settlements of trades and transactions.
These days, there is no documentation, and tangible certificates no longer exist. So, if you buy shares in any company, all you get is a computerized record in your Demat Account.
You may be wondering about the advantages of a Demat account in India. But, first, let’s discuss the advantages of a Demat account in detail.
Features of a Demat Account
Along with the benefits of a Demat account in India, there are several essential Demat account features:
More Like a Bank Account
Demat account works in the same way a savings bank account works. Just the bank account when you buy shares gets credited to your Demat account, and the shares are debited from the account when you sell them; shares get debited from your account.
Dematerialization of Securities
Investors can give their depository participants (DP) instructions to convert physical certificates into electronic forms. Investors can also request reconvert certificates from electronic to physical form if required.
Freezing Demat Accounts
If required, investors can freeze any particular quantity of securities in a Demat account for a certain period. Freezing will stop money transfers from Credit or Debit cards into a specific Demat account.
You can freeze your Demat account when you want to prevent any unexpected debit or credit into the account. For example, you can halt any money transferring into the Demat account by freezing your account.
Multiple Accessing Options
Only a good internet connection gets required for a better user experience. Now you can easily access your Demat account via various modes. You can access your Demat account via a computer, a smartphone, or any other type of intelligent device anywhere and anytime.
The Demat accounts gave easy and instant access to foreign investors to invest in the Indian Stock Market. As a result, it led to a significant rise in foreign money in the stock market, thereby helping to improve the Indian economy.
The National Securities Depository Limited (NSDL) permits consumers to electronically communicate instruction slips rather than physically presenting the slip to the DP. As a result, the operation is more convenient and takes a lot less time.
Corporate Advantages and Actions
If a company offers dividends, refunds, or interest to its investors, these benefits are immediately available to Demat account holders. Furthermore, corporate acts such as bonus issuance, right shares, or stock splits are automatically updated in all shareholders' Demat accounts.
Simple Share Transfers
Simple share transfers: Investors can use a delivery instruction slip (DIS) or reception instruction slip (RIS) for purchasing or selling shares. These slips enable users to submit all of the information needed to complete a transaction smoothly.
Faster Dematerialization & Rematerialization of Securities
Faster dematerialization and rematerialization of securities: Demat account users can tell their depository participant (DP) to transform certificates into digital form. If necessary, electronic securities can also be converted to physical form.
Loans Against Securities
Investors can take loans against the securities held in your Demat Account without much procedure. The shares in your Demat account will be held as a security to avail the loan, and the loan against Demat shares requires no additional collateral.
Benefits of a Demat Account
Physical shares must be converted into an electronic format via the dematerialization process to begin trading online. Because electronic shares are housed in a Demat account, creating a Demat account online is a must for online trading. This account provides several benefits in addition to keeping your stocks in electronic format. So, before you can appreciate the benefits of dematerialization, you must first know what a Demat account is, as well as its characteristics and benefits.
Here are some benefits and advantages of opening a Demat account.
Demat account facilitates investors to quickly transfer their shares in a short period without any paperwork. It doesn’t even need to visit the broker personally like in the past. This reduced time lets the account holder make additional purchases and sales of security holdings with more efficiency and in a short period.
Having a Demat account makes the whole process of online stock trading more straightforward and much faster. Nowadays, it is not required to send instruction slips to the DP. The National Securities Depository Limited (NSDL) permits the investors to send instruction slips electronically. It is time-consuming and is more convenient and efficient.
In the past, account holders were required to pay additional costs, such as stamp duty, handling charges, and many other expenses. The introduction of the Demat account eliminated these extra charges, thus minimizing the cost of owning the stocks of companies.
Demat account assures 100% safety and security of all the shares held in your Demat account. Physical securities involve the risk of loss, theft, wrong deliveries, and mutilation. Whereas there is no such risk associated with the Demat account as they hold the shares in electronic form.
In India, Depositories like National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) are regulatory bodies that regulate transactions. Therefore, reducing risks is one of the significant benefits of a Demat account in India.
Maintaining physical certifications is a time-consuming task. Keeping track of their performance is also an extra responsibility. Demat account holders can store and track all of their investments with ease by holding them in a single account.
Buying and selling actual certificates were only available in the stipulated quantity. There was also no option for dealing with odd lots or single security. This is no longer a problem with Demat accounts.
Allows for the linking of a bank account with a Demat account
One advantage of having a Demat account is that it may be connected to your bank account. This aids in the simple electronic exchange of payments.
Allows for nominations
One of the primary benefits of having a Demat account is the ability to name a nominee. By including a nominee, the investor grants the nominee the ability to run the account in his or her absence.
Eliminates the need for paper
Using a Demat account to trade shares online eliminates the requirement for paper-based paperwork. This helps businesses decrease administrative burdens while also following environmental standards by reducing paper usage.
Ease of Transactions
The Demat account lets investors place an order quickly, and the shares will get reflected in their account within two business days. It would take days to settle a single transaction in the stock market in the early days, but now the transaction is settled instantly after the end of the trading day. Also, investors don't have to visit the branch to settle any transactions.
Opening a Demat account allows the continuous monitoring of share transactions because it operates electronically. It removes the necessity for the investor to be fully present to complete transactions. A smartphone or computer can be used to acquire quick access to a Demat account. When you convert securities into electronic equities, you become the legal owner of your shares. Following that, certificates do not need to be transmitted to the company's registrar.
With Demat accounts, it is now more accessible to disbursing dividends. Dividends are the share of the profits a company generates that is given to its shareholders. These will be credited directly to the linked bank account, and investors don't need to fill out forms and deposit cheques at bank branches. Also, corporate actions like bonus issues, right shares, etc., are automatically issued through the Demat account.
Thus, the points mentioned above are the benefits of a Demat account.
Everyone prefers dematerialized securities, which is a commonly accepted and widespread practice. Investors can hold their securities physically or digitally, so it’s their choice. But maintaining physical security as compared to digital is not easy. It requires time and energy, so it is a general syndrome to adapt to new technologies.
You need a Demat account to hold all your securities, stocks, and bonds in dematerialized form. A Demat account offers its holder several benefits and features and guaranteed profits on their shares.
Demat accounts are reliable and secure accounts that allow for quick and easy transactions. They eliminate the hassles associated with keeping physical share certificates by transforming them into an electronic format. Furthermore, you may connect your Demat account with your trading and savings bank accounts with three-in-one and two-in-one accounts, making it easier to manage your money.
Frequently Asked Questions
Without opening a Demat account, one cannot trade in the Indian Stock Market. Therefore, it was made mandatory by The Securities and Exchange Board of India (SEBI) to open a Demat account for trading.
The Demat account offers quick and easy access to all their investment, transactions, and statements with the help of net banking.
There are various advantages of a Demat account to an investor like reducing risks, and providing easy transactions, etc.
Demat accounts are classified into three types:
Regular Demat account for Indian residents.
Repatriable Demat Account for Non-Resident Indians (NRIs), which permits funds to be sent overseas via a Non-Resident External (NRE) bank account.
Non-Repatriable Demat Account for NRIs, which does not enable funds to be transferred overseas. A Non-Resident Ordinary (NRO) bank account can be used to open such an account.
The best Demat account depends on individual preferences, requirements, and the services offered by various providers. Consider factors like brokerage charges, customer support, ease of use, and additional features. Conduct thorough research, compare offerings, and read reviews to make an informed decision tailored to your needs.