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.