Investing and Trading with a Demat Account has become the new normal for individuals nowadays due to the constant evolution of payment gateways and transaction methods. Gone are the days when we used to process transactions through some different secure gateways. Newcomers are keen to Open Demat Account and get started in the stock market. With the help of UPI – Unified Payment Interface, transferring money from one account to another has become easier than ever!
In this ever-popular and growing finance sector, have you wondered how all these stocks, trading, IPOs, ETFs, and SIPs are processed?
An individual will require a DEMAT ACCOUNT to process all kinds of transactions in the stock market, trading, IPO, ETFs, and SIP. Let’s understand what a Demat account is all about.
What is a Demat Account?
The term “Demat” is an abbreviation of “Dematerialised Account” which is used to hold securities and shares of an individual in an electronic format. The Demat account has successfully negated the need for holding and trading share certificates in a physical form.
A demat account plays a significant role in creating a portfolio of an individual’s bonds, mutual funds, ETFs, SIP, and stock market assets.
The first instance of demat trading in India occurred in 1966 for NSE transactions. According to SEBI regulations and guidelines, shares and debentures of all listed companies must be dematerialized to execute transactions on any stock exchange from March 31, 2019.
Importance of Demat Account
Demat Account is a primary requirement to invest in the stock market. It provides a secure and convenient way to buy and hold shares and plan your SIP with mutual funds, and other securities. In the current world, it is impractical to trade or invest in the stock market without a Demat a/c.
Here are some points that indicate the importance of a Demat account:
1. Ease of Trading: A demat account simplifies the process of buying and selling securities. Also, users can carry out their trades online with the help of a trading platform interlinked with the demat account. Quick and easy access to the market.
2. Portfolio Management: With a Demat account it is easy to manage and keep track of your portfolio. Be it investments, holdings, or monitoring performance in real-time, you can do it all with a demat account. So, in the time of buying, selling, or holding securities you can make better decisions.
3. Safety and Security: With a physical share certificate, there is always a risk of loss, theft, or damage. With a dematerialized account, securities are stored electronically with depositories like NSDL or CDSL, ensuring safety and security.
4. Cost-Effective: Compared to traditional paper-based methods, managing a demat a/c is very cost-effective. It minimizes the paperwork, administrative hassles, and associated costs like stamp duty.
5. Quick Settlement: With a demat account the settlement time is always faster, taking at least two working days. But in the case of physical share certificates, the settlement time may take longer.
6. Access to Corporate Actions: A Demat account holder receives timely updates and can participate seamlessly in corporate actions such as dividends, bonus issues, and stock splits.
7. Accessibility: Investors can access their Demat Account anytime, anywhere with an internet connection. This helps them manage their investments efficiently even from remote places.
Normally users think the uses and features of a Demat account lie only in Stocks and trading, but in reality, a Demat account is used beyond that. Let’s understand the use of a Demat account in key areas.
1. Stock Trading
Stock trading is one of the primary uses of a demat account where users buy or sell stocks or shares in the stock market. With the help of a online demat account, investors can trade equities electronically which ensures secure transactions.
2. Investing in Mutual Funds
Investing in Mutual Funds is another use case of a demat account. Some mutual fund companies offer the option to hold mutual fund units in demat form. To make such offers work, investors can use their demat a/c to invest and hold units of mutual funds.
3. IPOs
Initial Public Offerings or IPOs are easier than ever with the use of Demat a/c. Investors can directly apply for IPO shares online and receive share allotments in their demat accounts upon successful allocation.
4. ETFs
ETFs or Exchange Traded Funds is another example of how demat accounts play a large role in the finance market currently. Like stocks and Mutual funds, ETFs can also be held in Demat form. Investors are allowed to sell their ETF units from their demat a/c. It gives exposure to various assets such as equities, bonds, and commodities.
5. Loan against Securities
One of the best parts of having a demat account is the option to loan against securities. Investors can avail loans against the securities held in their demat accounts. Financial institutions and Banks may offer loans against mutual funds, shares, or other eligible securities. It provides liquidity without the need to liquidate investments.
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Benefits of Demat Account
A Demat account offers numerous benefits such as paperless transactions, instant transfer of securities, reduced paperwork, and the ability to access your holdings from anywhere at any time.
Here are some of the most common benefits associated with a Demat Account.
It reduces the risk of theft, misplacement, forgery, or damage to your shares.
It is time-saving and transactions are processed faster than physical share certificates.
Demat account holders can access their shares, stocks, holdings, and portfolios remotely with an internet connection.
It allows investors to merge bank accounts with dematerialized accounts to complete ETFs (Electronic Fund Transfers).
Several platforms offer a demat account facility if they open demat account online.
Demat account holders with a particular unit of securities in their portfolio have the option to freeze their accounts for a limited period. It makes your account secure by avoiding any unwanted transactions.
Requirements To Open Demat Account
Account Opening Online can be done by filling in certain criteria and requirements. To open a Dematerialised account you must satisfy all the criteria. Some criteria may vary depending on the regulations of the country, brokerage firm, and depository participant.
The common requirements are as follows:
PAN Card: A PAN Card is mandatory to create a demat account. It acts as a primary identity for tax purposes and is required by regulatory authorities.
Aadhar Card: Aadhar Card is also mandatory to create a demat account. Aadhar card is used to cross-check the identity and address as per the government’s Aadhar database.
Address Proof: The user needs to provide a valid address proof which could include documents such as driving license, passport ID, voter ID, utility bills, etc.
Passport Size Photographs: Passport-size photographs are required to process your application form. Depending on the platform you are creating a Demat account, the number of passport-size photos varies.
Identity Proof: Even after providing PAN card and Aadhar Card details, you may need to provide another identity proof document, such as a Driving license, voter ID, or any other government-issued photo ID.
An investor can choose any of the following types of demat accounts.
1. Regular Demat Account
Indian citizens residing in India are eligible to apply for a regular demat account. Regular demat accounts are usually known as Free Demat Accounts where there is no involvement of any type of fee. Regular Demat accounts have turned out to be the best Demat account in India.
2. Repatriable Demat Account
Indians who do not reside in India, in other words, Non-resident Indians can apply for a repatriable demat account. Account holders can transfer money from other countries if linked to an NRE bank account.
3. Non-repatriable Demat Account
NRIs can also open a Non-repatriable Demat Account, but the key difference is that it can’t be used to transfer money from abroad. One must link a Non-resident Ordinary (NRO) account to operate this type of demat account.
Fees Associated with Demat Accounts
Any investor can open a free Demat account by first understanding what a Demat account is, but certain charges are applied to ensure its smooth operation. Each brokerage firm (including banks) has its own set of brokerage fees. Here are some of the common charges:
1. Annual Maintenance Charges
Most firms impose an annual maintenance charge for a Demat account. Depositories follow specific guidelines to determine the applicable fee for each investor.
As of June 1, 2019, SEBI has implemented revised rates for Basic Services Demat Accounts (BSDA). According to these guidelines, no annual maintenance charge applies for debt securities up to Rs.1 lakh. For holdings between Rs.1 lakh and Rs.2 lakh, a maximum fee of Rs.100 can be charged.
2. Custodian Fees
Depository participants charge a custodian fee, either as a one-time or annual fee. This fee is paid directly to the depository (NSDL or CDSL) by the brokerage firm.
3. Demat and Remat Charges
These charges are applied as a percentage of the total value of shares bought or sold and cover the costs of digitizing or physically printing securities.
4. Other Charges
In addition to the above fees, investors may also be liable for charges such as credit fees, applicable taxes and CESS, and rejected instruction charges.
Demat accounts are essential for stock market investments, being one of the most common methods of investing. However, many online platforms now offer the convenience of online trading without the need for a Demat account.
It is important to have an eye on your investments regularly to make the most of your demat a/c. Keep your contact details updated, and if possible set up alerts for transactions to avoid intruder access, and practice secure online trading practices. Managing your demat a/c properly will help you achieve your financial goals.
Conclusion
A Demat account is a fundamental tool for modern investors to participate in the stock market efficiently. By understanding its uses, benefits, and requirements, and choosing the right account provider, investors can streamline their investment journey and navigate the financial markets with confidence.
So, will you open demat account to invest effectively in stocks and shares? If yes, then let’s get started without further ado. Open a demat account with Jainam Broking Limited Now!
What is a Demat Account? Uses, Benefits & Requirements
Is it mandatory to open a Demat account for investing in the stock market?
Yes, having a Demat a/c is mandatory for trading and investing in the stock market. It serves as a digital repository for holding securities in electronic form.
Can I have multiple Demat accounts with different providers?
Yes, an individual can opt for opening a Demat account of multiple types with different providers. However, it is essential to manage them efficiently and comply with regulatory requirements.
What are the charges associated with opening and maintaining a Demat account?
The charges associated with a Demat account include account opening charges, annual maintenance fees, transaction charges, and custodian fees. It is advisable to choose an account provider with a transparent fee structure.
How does a Demat account secure online Demat account transactions?
Online Demat account transactions are secure due to stringent security measures implemented by service providers. It is crucial to follow best practices like using secure networks and keeping login credentials confidential to ensure the safety of transactions.
Is it possible to convert physical share certificates into electronic form through a Demat account?
Yes, it is possible to convert physical share certificates into electronic form through a Demat account. A Demat account work based on this process is known as dematerialization which eliminates the need for physical certificates and facilitates easy tracking and trading of securities.
The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Groww Invest Tech Pvt. Ltd. (Formerly known as Nextbillion Technology Pvt. Ltd) Ltd. do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
