In the digitalized setup of stock trading, a Demat account is indispensable. You cannot invest/ trade any securities without a Demat account if you are trading on a stock exchange. So, why is a Demat account so important for traders and investors? Are you wondering where to open a Demat account, and how to go about the following steps? If you answered yes, then you have landed on the right page? Here, you will find answers to all your queries related to the advantages of the Demat accounts and other details.
What is a Demat Account?
Before you open a Demat account, don’t you want to know what it is and how it works? So, a Demat account is like a bank account where you keep all the securities you have purchased in the digitalised format.
Since there are no more physical share certificates and everything is digitalised, the shares certificates are too, thus a Demat account is like a safe or vault where all the shares and other certificates related to your investments are retained till you sell them, just like a bank account holds your money.
A Demat account works when you buy or sell a share in a typical manner like a bank. When you purchase shares, they get credited to your Demat account. When you sell the shares, they get debited from the Demat account, and the balance is reflected.
Why is it Important for Traders and Investors?
Demat account is important for trading because there is no other way you can trade or invest in the stock market through standardised stock exchanges. If you are trading over the counter, then you won’t need one, but a Demat account is necessary for both, traders and investors. Even if you are investing in an IPO, you won’t need a trading account, but a Demat account is mandatory.
Demat accounts are offered by depository participants of the two depositories of the country that are CDSL and NSDL. All the Demat accounts are facilitated by these two depositories, which are the clearing houses from where all the instructions and orders passing through your trading and Demat account finally get registered.
Then the depository, according to the order, debits or credits the shares from the Demat account of the holder. It takes t+2 days usually for each transaction to get settled as it has to go through this whole process.
So, the process of dematerialisation has integrated Demat into the system and without it, no investor can invest in any of the stock market assets.
Benefits of Demat Account
There are ample benefits of a Demat account, and some of the most important ones are –
● The risk gets lowered:
The first and foremost benefit is the risk of losing all the physical share certificates. Earlier, when traders and investors had to deal with physical share certificates, often the certificate used got lost, turned and stolen, and whatnot. With the digitalisation of the whole process, now share certificates are stored in the Demat account in electronic format, and no one except the account holder has access to them.
Time-saving and easy:
The second point has to be time-saving and ease of use. At present, a transaction is fully settled within t+2 days. Earlier, it used to take days and weeks as there were physical certificates and offline trading processes. With the Demat accounts, you can trade/ invest, check your balance in the Demat account and trading account, and everything is smooth and quick. You do not have to run for availing of the physical share certificates.
Cost of trading has been reduced:
The cost of issuing share certificates in the physical form had a cost. With Demat account taking over the stock market trading/ investments, the cost related to all these has got deducted. So, the overall cost of share investment and trading has been reduced. Moreover, you do not have to travel to trade or invest in the stocks, you can do it from your home.
The shares in the digitalised format in the Demat account can be transferred easily without any hassle. Earlier it used to take around a month to transfer shares from one account to another. Also, if you are transferring shares from one account to another, there is no stamp duty as well, which further reduces the cost of investments.
Track your securities anytime:
With a Demat account and dematerialised shares in it, you can track your portfolio anytime and keep a track of your investments without any hassle.
Against the shares/ securities in your Demat account, you can avail loan from your broker or take higher leverage, isn’t that a great benefit?
Quick access to corporate gains:
Earlier, stock splits, bonus shares, and dividends used to get reflected in your share trading account after months, but with the Demat account, it is reflected as soon as the company processes the same. So, this helps you avail the benefit of these corporate actions.
While the list of the benefits of a Demat account can go on as they are in abundance, the primary thing is with a Demat account, it is not possible to trade securities on stock exchanges in India. Thus, it is not only important to have a Demat account, but it is mandatory to open a Demat account