What is a Demat Account?
Demat Account Introduction
Investing and trading in the stock market is gaining a lot of popularity these days. But you just cannot invest or trade in the stock market without the proper means. You need a demat account or dematerialisation account to invest in the stock market. Having this account is the primary requirement to buy and sell shares. In India, there are two depositories who provide the service of demat account: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). You can open an account by availing the services provided by these two depositories through intermediaries or depository participants or stock brokers. In this article, you will get to learn about demat account information and its related concepts.
Firstly, let us learn about the demat account meaning.
What is Demat Account?
Demat account or dematerialised account is an account that holds the shares and securities that you own in an electronic form. You can purchase or sell shares through the online demat account. It is just like a bank account which holds your money at one place. In this account, all your shares, mutual funds, government securities, bonds and exchange-traded funds are held at one place.
While understanding the demat account information, you must have come across the term “dematerialisation”, let us now understand its meaning.
Meaning of Dematerialisation
Dematerialisation, is converting the physical share certificates held by investors into electronic form. With dematerialisation, you are no longer required to hold shares or securities in physical form. By dematerialising, you can easily access your demat account from anywhere across the globe.
Let us now read about the facilities offered by this account.
Facilities Offered By a Demat Account
• With the help of the Delivery Instruction Slip (DIS), you can easily transfer your shares to another individual. The transaction is hassle-free because the slip contains all the relevant details.
• The shares held in the demat account can help you in availing the loan facility from the bank. You can keep the shares held in the demat account as collateral security and avail loan against it.
• With this account, you can easily convert your shares and securities held in physical form into electronic form.
• With the availability of online demat account, you can access and transact through this account by using a desktop, laptop or smartphone from anywhere around the world.
• It provides you the facility of availing the corporate benefits associated with the shares held in this account. Benefits or actions like dividend, refunds, interest, stock split, rights issue, bonus shares, etc. are automatically updated in this account.
• When the holder of the account holds a specific quantity of shares and securities in it, he can avail the facility of freezing the demat account. This is done so as to avoid any debit or credit into the account due to any reason or cause.
This was about the facilities offered by a demat account, let us learn about the benefits of opening an online demat account.
Benefits of Opening Online Demat Account to Investors
• It provides the facility to individual investor to trade from anywhere in the world.
• With this account, the individual investor is not required to maintain extensive paperwork of the transactions and visit the broker regularly.
• It is much safer, quicker and also helps in overcoming inefficiencies like delayed settlements and deliveries.
• Since trading can be done from anywhere with this account, it generates more interest and increases the participation of investors in the share market.
• The shares held in this account are widely accepted in the form of collateral security for obtaining a loan.
Let us now read about the benefits this account from the perspective of a company.
Benefits of Demat Account to Company
• With this account, the companies are able to maintain a more transparent trading system that enables them to efficiently transfer shares electronically to the shareholders.
• It eliminates the use of paper which makes the work easier on the administrative front and it is convenient to store data online rather than on paper.
• Because of online demat account, the companies are no longer required to print and distribute the shares to the investors. This helps them cut costs and saves their valuable time.
• Since the shareholders are now using this account, the companies can easily communicate with the shareholders and pass on the necessary information electronically.
Let us now read about the benefits of this account from the perspective of brokers.
Benefits of Demat Account to Brokers
• With the introduction of this account, the brokers are able to provide better services to the customers because now they don't have to worry about the risks related to theft, bad delivery or fraud.
• It has increased the interest and participation of the investors. This has resulted in an increase in earnings and profits of the broker.
• Brokers can be trusted because of the quick and easy transfer of demat shares. It helps in trust building and increasing the confidence of investors.
Demat account provides the investors with an opportunity to trade and invest in the Indian stock market. No one can participate in the stock market without opening this account. Being the primary requirement to invest in the share market, it has many benefits and advantages to a wide number of participants associated with the stock market.
Demat account is the safest, reliable and quickest way to transact in shares and securities. You can open this account without having any shares in the account and also maintain a zero balance in the account. In order to open a demat account, just visit the website of a reputed stock broker like IndiaNivesh and complete the formalities to enjoy the services.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.