For trading, you need to have a few mandatory accounts and tools, and one of them is the Demat account. In the age of digitalization, when trading and investment have also become completely digitalized, Demat accounts are indispensable. So, what are these Demat accounts, and how do they work? If you are looking for answers to questions like these, you have landed on the right page. This article will guide you about what is Demat account its use, and a lot more.
What is a Demat Account?
A Demat account holds all the securities you purchase from the stock market. Suppose, today you bought 500 shares of ABC company. So, these 500 shares will get credited to your free Demat account upon successful payment and completion of the transaction.
Demat account is quite similar to the bank account where the money you receive gets credited. A Demat account stores your in electronic format.
There is no worry of misplacing the physical certificates of shares anymore, nor do you need to spend a lot of time and money going to the exchange and availing of the physical share certificates.
When shares or other assets are purchased, the units of the asset purchased get credited to the Demat account. When there is a sale of an asset, the number of units sold gets debited from the Demat account.
How Does Demat Account Work?
Demat accounts are provided by the Depositories and the brokerage houses (DP) are only intermediate. So, when an order is placed on the trading account, the same goes to the Depository, and accordingly, the Depository release shares and receives the money. The shares then get deposited in the Demat account. Demat accounts are maintained by the Depositories as well.
What are the Use of a Demat Account?
There is ample use of a Demat account, and here are some of the most popular ones –
- Firstly, Demat accounts are mandatory by SEBI. If you want to trade, invest or do anything related to the stock market, you would need a Demat account. It has been made necessary, and thus you cannot purchase or sell stocks or other assets without using a Demat account.
- Demat account has made the whole trading process easy. Now, the traders do not have to stand in queues to receive the share certificates. The shares certificates come in digital format and are stored in the Demat account.
- You need a Demat account for IPO investment. As when you apply for an IPO and get the allotment, then the shares will be allotted and stored in the Demat account only.
- Demat accounts help in the quick transfer of shares. As there is no physical transfer, with Demat accounts, the transfer of shares is really quick.
- There are no chances of bad deliveries.
- Bonus shares, dividends, stock split, and all corporate actions get reflected in the account easily and super quickly.
- Another use of the Demat account is that the traders/ investors can avail of a loan against the shares lying in the Demat account. So, the Demat account can be used as a mortgage source.
- The Demat account also helps in keeping all your investments in one place. Whether you invest in stocks, mutual funds, commodities, and others, you can see all your investments in your Demat account of yours. However, you can have multiple Demat accounts for multiple investments as well.
Are There any Charges for Opening a Demat Account?
Demat accounts are offered by the brokerage houses but are created and maintained by the depositories. So, there are charges like account opening, maintenance charges, and others levied on the Demat account. However, there are many DPs who waive the account opening fee or the annual maintenance fees.
How Can You Use a Demat account?
The process of using a Demat account is quite simple. If you want to trade or invest in the stock market and use the Demat account, here is a guide for you –
- Open a Demat account with the brokerage house of your choice.
- For opening the Demat account, you need to enter your personal and bank details.
- Then you will receive a call from the executive of the brokerage house, and they will guide you about the process and inform you about the charges involved.
- Once your account is approved and live, you can trade.
Conclusion
So, Demat accounts are mandatory for trading and investment in India. Without a Demat account, you cannot invest or trade in the stock market. Before opening any Demat account, make sure you have checked and compared all the charges and everything.
