In India if anyone wants to start trading and want to hold their stocks, bonds and mutual funds then they need a demat account. So, now let’s understand the meaning of demat account, its importance, benefits and its types.
Table of Contents
1. What is a Demat account?
2. Importance of Demat account
3. What is Dematerialisation account
4. Features of Demat account
5. Benefits of Demat account
6. How does a Demat account work
7. Types of Demat account
8. Documents required for Demat account opening
9. Demat Account has following charges
10. Conclusion
What is a Demat Account?
Demat account is short form for dematerialisation account. In finance dematerialisation means a process in which a client can get physical paper form securities converted into electronic securities/balances. A dematerialised account can be a bit similar to a bank account to maintain and hold your share certificates and other securities that you have invested in an digitized electronic format.
Physical paper share certificates were soon transferred and converted into electronic form of securities of the equal price and number and after the full digitalisation process, paper were credited to the investor’s demat account. Hence making the trading practices a whole lot smoother, quicker and secure for the investors.
The process of investing in the share market has been made easier through the introduction of Demat Account. Dematerialised Account makes investing in and Holding of investment securities such as bonds, shares, government securities, Mutual Funds, ETFs and insurance hassle free and easier, by converting the process entirely online and electronic. Eliminating the inconvenience of processing physical paper forms, documents, paper shares.
IMPORTANCE OF DEMAT ACCOUNT
1. Eliminates theft , forgery , loss, and damage to the physical certificates.
2. Quick transfer of shares.
3. It eliminates unnecessary paperwork.
4. Online opening of a Demat account is simpler and faster.
5. It eases and streamlines the process of share trading.
WHAT IS DEMATERIALISATION (DEMAT)
When investors buy shares, bonds and mutual funds they store them in the electronic form that means in the dematerialised form. When we store them in electronic form it is easy to maintain them and access them from anywhere online. If investors want to convert their physical papers into digital form then must open a demat account.
FEATURES OF DEMAT ACCOUNT
Initially, shares were held in a physical form that made the entire procedure confusing and time consuming. So to regulate such a situation National Securities Depository Limited (NSDL) was founded in 1996. NSDL introduced the concept of Demat account in which investors can store their shares, bonds and mutual funds in electronic form. If investors want to invest in the stock market they need a demat account in India.
BENEFITS OF DEMAT ACCOUNT
1. No paper worries
Before the use of the dematerialised account, shares existed as physical paper certificates. Now with the introduction of the demat account you don’t have to hold physical papers.
2. Easy storage & transfer
You can trade in volumes as you can store any number of shares. You can monitor the information of all the shares you have in it.
3. Bonus stock-splits get automatically updated
If an initiative of the company whose shares you are holding brings in a change to its stock such as bonus issue , stock split , etc then it is automatically updated.
4. All -in- one storage for your investments
Besides the shares, it can also hold multiple assets like bonds , mutual funds etc.
5. Easy access online
You can access your Demat account from mobile or laptop from anywhere and anytime.
6. Nominate with ease
A dematerialised account also provides the nomination facility as per the process described by the depository .
HOW DOES A DEMAT ACCOUNT WORK
– If investors want to buy or sell a specific share. You need to login your Demat and trading account, which is also linked to your bank account
– When traders place a buy or sell request, the depository participant(DP) forwards this request to the stock exchange immediately.
– When investors place a buy order the stock exchange searches for a seller who wants to sell their shares and if the price is the same then the request is sent to clearance houses to debit the shares from the sellers account and add them to the investors account who placed the buy request.
TYPES OF DEMAT ACCOUNT
There are three types of Demat account such as regular , repatriable , non-repatriable
1. Regular Demat accounts
These are meant for Indian residents. Here the charges are dependent on the type subscribed , volume that is there in the account and the various terms and conditions set by depository participants.
2. Repatriable Demat Account
This kind of Demat account is good for NRIs who wish to invest in the Indian stock market quickly from any part of the world. Such as an account , they can transfer their funds to various foreign countries.
3. Non – Repatriable Demat Account
This is similar to a repatriable Demat Account and is also for NRI’s This requires you to link it to a non resident ordinary (NRO) Bank account .
DOCUMENTS REQUIRED FOR DEMAT ACCOUNT OPENING
These are the following documents required for opening of dematerialised account
1. PAN CARD
2. Proof of address (Aadhar card , driving license , passport )
3. Photograph
4. Signature on white paper
5. Income proof , for activation of futures and option segments.
DEMAT ACCOUNT HAS FOLLOWING CHARGES
Conclusion
Demat account is required for holding your shares, bonds, mutual funds etc in dematerialised form. Dematerialised account is not used for buying or selling purposes. It is used to hold your securities.