Introduction to Demat account

Introduction to Demat account

The word Demat comes from dematerialization. It means the conversion of one material into another. A Demat account is quite similar to your savings account. Previously, there was an era when traders had to exchange physical certificates of their shares. These certificates were a thorn in one’s flesh as it would take a lot of time to mail or would get damaged. To overcome this hassle, today all the shares that were stored in a file format or a physical format now are stored on an electronic device.

Basically, a Demat Account or dematerialized account provides the facility of holding shares and securities in electronic format. During online trading, shares are purchased and held in a Demat account, thus facilitating easy trade for the users. A Demat Account includes all the investments an individual makes in shares, government securities, exchange-traded funds, bonds and mutual funds under one roof.

In simple words, a Demat account stores your shares in chunks of 0’s and 1’s, computer ling and can be accessed online with the help of your Demat account. Every Demat account has a unique Demat number which helps the stock exchange identify you. This is why you cannot trade in the market if you don’t have a Demat account.

Opening a Demat account can bring multiple advantages to investors. The hassle paperwork involved in selling and buying stocks in the securities market, a Demat account acts as an ideal solution to trade shares. It holds securities electronically, thus making the complete process of investing, storing, overseeing, and trading, quicker, accessible and cost-effective.

  • 1. Fewer risks:
  • Physical securities can be risky due to the dangers of loss, theft or damage. Moreover, receiving swindle securities can increase risk. By opening a Demat account, all these problems are eliminated that provides holders with the opportunity of storing their investments electronically.

  • 2. Safe and secure holding:
  • Keeping tabs of physical certificates can be a tedious task. Also, maintaining a track of their performance is also an added chore. An investor can hold and track all investments through a single account as a Demat account holder.

  • 3. Receiving critical information:
  • One significant benefit of holding a Demat account is having access to helpful data. You can visualize live market updates and Analyse multiple investments. You can make smart investment decisions based on analytical data and market capitalization.

  • 4. Decreased expenditure:
  • There are various costs associated with holding physical certificates, such as stamp duty, handling charges and other outlays. These extra expenses are removed by having a Demat account.

  • 5. Trade-in any quantity:
  • Buying and selling physical certificates were possible only at particular lots. However, with a Demat account, you can now buy or sell any number of shares you want, even if it is just one.

Demat account is like a locker where your shares are in electronic forms. The Demat account presents a simple form by which securities can be handled.

  • 1. Easy share transfers:
  • Traders can transfer their shares via delivery instruction slip (DIS) or receipt instruction slip (RIS). These slips permit users to provide all the information that is required for executing a transaction smoothly.

  • 2. Quick dematerialization & rematerialization of securities:
  • Demat account holders can give direction to their depository participant (DP) to convert physical certificates into electronic form. Moreover, electronic securities can also be reconverted to physical form, if necessary.

  • 3. Pledging facility to avail loan:
  • Few lenders offer loans against your shares held in the Demat account. These holdings are used as collateral to avail loans by the account holders.

  • 4. Freezing Demat accounts:
  • If required, Demat account holders can freeze their accounts for a certain period. This is beneficial if one wants to prevent unnecessary debit or credit into one’s Demat account. The freezing choice is accessible for a specific quantity of securities held in the account.

  • 5. Multiple Accessing options:
  • Demat accounts are operated electronically, which means these can be accessed using different modes. These accounts can be accessed via the Internet using a computer or smartphone.

  • 6. SPEED E-Facility:
  • The NSDL, which stands for National Securities Depository Limited permits users to send instruction slips electronically instead of submitting the slip physically to the DP. This makes the process quick and convenient.

  • 7. Corporate benefits & actions:
  • If the companies offer dividends, interest, or refunds to their investors, these advantages are automatically available to the Demat account holders. In addition, corporate actions like right shares, bonus issues, or stock split are automatically updated in the Demat account of all the shareholders.

  • Who can create a Demat Account?
  • All resident individuals, including minors, HUF, partnership firms, proprietorship firms, partnership firms, companies or any bank can create a Demat account.

  • Is nomination necessary for a Demat account?
  • According to SEBI rules, it is important to file a nomination form with every Demat account opening form. If any individual does not want to give nomination then he must give a signed declaration for it.

  • How many persons can create Demat account as joint holders
  • Maximum 3 persons can open Demat account and mode of operation will be joint always.

  • Can anyone else use my account on my behalf on the basis of a power of attorney?
  • Yes. If you authorize any person to operate your account by executing a power of attorney and submit it to your DP, that person can use the account on your behalf.

  • Can I hold other securities in one Demat account?
  • Yes, you can have other securities such as government securities, mutual funds, etc in the same Demat account.