If you are among the millennials fascinated by the stock market, you need to set up your demat account, and a trading account with a SEBI registered stockbroker. A demat is required to store your securities for online trading, and you need a trading account to trade these securities. Here is the guide explaining all about demat accounts.
Demat Account Meaning
Demat account or Dematerialised account is an online account; its working system is like a bank account. Just the way a bank account stores your money, a Demat account keeps your securities electronically. You store your financial assets in a demat account.
Among numerous functions and benefits of the demat account, the primary function is to store your financial securities in digital form safely.
When you open a demat account, you are offered a trading account also, by your broker. If you opt for a demat and trading account, look at the trading software that the broker provides. It should be user-friendly to make investing easy. You can avoid unnecessarily complicated software.
Let us define its other functions and benefits:
1. Quick transfer of shares and securities
from sellers to buyers or companies to investors. It was the process of many days when trades occurred through loud bargaining on the trading floors before the inception of the demat account.
2. Conversion and transmission of shares.
An online demat account changes the paper-based shares into electronic form. An heir or nominee can get the shares directly in their demat accounts.
3. Secures corporate benefits automatically.
You can receive the benefits arising from bonus/split/consolidation/merger etc., directly in your demat account.
4. The solution for the odd lot issue.
Demat account has solved the issue of odd lots. You can trade even one share. You need not make heavy transactions in one go. You need to open a trading account to buy or sell securities in the stock market. A demat account is storage and not a trading platform.
5. Hold and track a variety of securities in a single account.
Most investors diversify their investment portfolios across different financial assets. You can hold all your equity and debt instruments in your single demat account, or you can open multiple demat accounts to separate your investments based on your investing goals.
6. Loan facility against your demat securities.
Financial institutions grant a loan against your demat securities. You need not sell them in hassle and bear a loss due to hurried sales.
Your demat accounts are safe with the Depository Participants (DPs) under the surveillance of Central Depositories. With the demat account meaning, an investor should know about DPs and depositories.
What are the Depositories and Depository Participants in India?
In India, there are two SEBI-registered depositories. The NSDL and the CDSL. SEBI authorizes them for demat services. However, they do not connect with investors directly. They provide their demat services through their registered agents called depository participants (DPs).
Also read:- Stock Market Awareness Among The Educated Youth
Benefits of Depository services include:-
- A safe and convenient way to store securities
- Quick transfer of securities
- Zero stamp duty
- No risks of bad delivery, fake securities, delays, etc.
- Minimal paperwork
- Reduced transaction cost
- Trade even one share
- Nomination facility
- A quick modification in address registered with all companies, no need to correspond separately with each company you have invested in
Statement of Demat Account
Your DP shall provide statements of your demat account every month as per SEBI/depository instructions in this regard.
- In case there is no security in your demat account during the year, your DP is not obliged to send a paper-based transaction statement for the demat account. And it will resume sending the statement when securities reflect in your demat account.
- As per the desire of the demat account holder, the DP may send the account statement in electronic mode only.
- If you have Basic Services Demat Accounts, the DP will send the demat account statements online as per the SEBI and Depository mandates.
Freeze and Defreeze of Demat Account
- If you want to take a gap from trading, you can exercise the right to freeze/defreeze their demat account. It will ensure that your demat can not be used with the intention of fraud in your absence. And the good thing is that you can receive your corporate benefits even if your demat account is freezed.
Thus, with a demat account, you are free from worries of safety of your securities. If you want to open a basic demat account, you need not pay any demat account opening charges to your DP. And other charges like account maintenance charges, transaction charges, custodian charges will be applicable as per DP’s terms and conditions.
Thus, the demat account brings more security and transparency in trading activities. Simply go to the official website of the stock broker/depository participant and submit the demat account opening application with the soft copies of your required documents – PAN card, ID proof, and residence proof.