Features and benefits of a demat account in India

Demat is an abbreviated word for dematerialisation (converted from physical to electronic shares). A Demat Account allows one to hold shares and securities in electronic format, with an aim to facilitate easy trade for users. The entire procedure of investing, trading, holding, and monitoring can thus be made convenient, cost-efficient, and faster. It’s in a way like your bank account. However, when a bank account holds cash, the Demat account holds shares and other securities. A Demat Account can hold all the investments an individual make, be it shares, bonds, mutual funds, government securities, or exchange-traded funds. In other words, a Demat account allows the investor to buy and sell as well as transact a whole lot of products, other than shares and stocks, conveniently under one roof, and without the need of any sort of paperwork. There is also the corporate advantage of bonus issues, rights share, stock split, etc. directly getting updated in the account.

 

Why do you need a Demat Account?

Holding of shares and stocks in physical form has always been challenging, with the chances of them getting misplaced, damaged etc. This safety concern has been addressed with the introduction of Demat accounts and securities getting stored in electronic format. Also, as per the Securities and Exchange Board of India (SEBI), the Regulator for the Securities market in India owned by Government of India, to trade in the stock market it is mandatory to hold a Demat account. It is also convenient as it saves time and buying and selling securities can be done online in the comforts of your home. One can hold various investments like mutual funds, equity shares, bonds and exchange-traded funds under one Demat account, which can be opened without possessing any shares and with zero balance.

The purpose of Demat account is to eliminate the risk of holding physical share certificates. When securities are purchased or sold it immediately gets reflected in the account, which holds shares and securities in an electronic form. NSDL (National Securities Depository Ltd) and CDSL (Central Depository Services Ltd), registered with SEBI, are the two depositories that facilitate the opening of new Demat accounts through a Depository Participant (DP).

 

Features of Demat Account

By opening a Demat account with a bank or a broker which is linked to a trading account, investors can buy and sell securities anytime and anywhere. Dematerialisation of securities is made easy as the conversion of physical certificates to electronic and vice versa can be carried out just by passing an instruction to the Depository Participant (DP). With a Demat account in place, one can easily access details on his/her trade and make quick decisions. If in the pre-Demat era, transfer of shares was an elaborate time-consuming affair (it usually takes a month or so), this is now done at the click of a mouse. Demat account has made liquidity of shares to get money on the selling of securities easier, faster and simpler. With a simplified process and no stamp duty required for transfer of securities in electronic form, the cost incurred is also brought down. A holder of a Demat account can also avail for a loan against securities. An investor, at his will, can put on freeze his/her Demat account or put on hold a specific quantity of securities for a certain period of time.

Another feature of Demat account is the simple, hassle-free manner of operation. When shares are bought, the Depository Participant (DP) credits it to investor’s online Demat account with the shares and they are reflected in the holding statement. When shares are sold, you need to give your broker an instruction with details of stock sold. Your account is debited with the shares and you are then paid for the shares sold. If an investor is trading via an internet-based platform, s/he can view their holdings online whereas the broker credits the share on T+2 (Trading day + 2 days). If you are trading via the internet, your account will automatically reflect the shares sold while the amount is credited to your bank account.

 

Benefits of Demat Account

A wide range of benefits awaits those opening a Demat account. One key advantage of having a Demat account is the lower risks involved. Threats posed with physical securities in the form of thefts, losses, or damages are completely eliminated with the opening of a Demat account, which provides holders with the option of holding all their investments in electronic form. In a Demat account, the conversion of securities into different formats happen in no time. Just by giving instructions to your DP (depository participant) one can initiate dematerialisation formalities to convert the physical share certificates into electronic form. Other benefits include:

Safety features: Demat accounts, with two-factor authentication (2FA), is a safer and better option and eliminates the risk associated with physical shareholding in the form of theft, loss or damage.

Easy access & monitoring: Demat accounts, which are operated completely online facilitate easy access and monitoring of the holdings from the comforts of one’s home.

Quick & convenient: With everything in digital format and conducted online, they are very convenient and less time-consuming. One can buy, sell or transfer funds and securities in a matter of a few seconds.

No stamp duty involved: Unlike physical trading, there are no additional costs of stamp duty, handling charges, etc. involved when you are trading with a Demat account.

Corporate Gains: Be it bonus issues, right shares, or stock split offered by companies are automatically updated in the Demat accounts. This means dividends, interest, or refunds reach the Demat account holder without any delay.

Can hold other investments too: Your shares, equities, bonds and other securities and investments can be organised in one place by opening a Demat account.

 

FAQs

Why do we need a Demat a/c?

Demat accounts make the maximum out of this revolutionary switchover to electronic format and are hence the necessity of the day. Be it investing, trading or holding/ maintaining of shares or stock, digitisation has brought about a qualitative change. Essential to trade in India’s stock exchanges, Demat accounts offer its user/ trader a seamless and smooth experience while trading at Dalal Street. To settle trades electronically or to buy shares and store them safely, you need a Demat account number.

 

How is Demat account different from a bank account?

A Demat account is mostly similar to a bank account in which you keep deposits, the records of which are maintained in a passbook. Earlier, during physical shares' era, frauds were challenging to be detected as there was always a risk of receiving fake shares, and delays in settlements were the rule of the day as issuing and transferring of share certificates take nothing less than 15 or more days.

 

For what all purposes can a Demat account be used?

It’s not just the shares and stocks, a Demat account can be used to retain several investment opportunities like mutual funds, equities, bonds, index and gold, initial public offerings (IPOs), non-convertible debentures (NCDs), Exchange-traded funds (ETFs), government securities etc.

 

Who all are involved in operating a demat-cum-trading account?

There are two Depositories in India — the National Securities Depositories Ltd (NSDL) and Central Depository Services Ltd (CDSL) — through whom the shares are held by the various depository participants. Other parties involved in Demat account transaction are Depository Participant (DP) or authorized stockbroking firm; financial institution, i.e. the bank; clearing houses which take care of debiting or crediting of shares, National Securities Clearing Corporation Ltd (NSCCL) under NSE and Indian Clearing Corporation Ltd (ICCL) under BSE; and stock exchange.

 

Can my Demat account be collateral towards loans?

Your securities can act as collateral towards a loan. The securities held in the account can provide the investor his exact and detailed holding to enable him to apply for a loan from a bank or financial institution.

 

Can I have multiple Demat accounts?

Yes. One can have multiple Demat accounts. However, there is one condition. You cannot have multiple Demat accounts with the same broker or DP.