DEMAT ACCOUNT

 

What is a Demat Account?

A demat account stands for ‘Dematerialised’ account which means that your shares, stocks, bonds, and other financial securities are now available in electronic form rather than a ‘material’ or hard copy form.

A demat account can hold the following range of securities:

• Shares

• Stocks

• E-gold

• Bonds

• Government securities

• IPOs

• Exchange-traded funds

• Non-Convertible debentures

• Mutual funds traded on the stock exchange
  
  

You can think of a demat account as any other bank account: it shows your credits, debits, balances, transaction history, and is a place to maintain your finances electronically. There is no lower limit to the value of holdings you need to have to maintain the account. You can have a zero balance when you open the account, and even during the whole time you hold the account.

Opening account to start stock market investment

Opening a Demat account is the first step towards starting an investor’s journey. But to start trading, you will need a bank account, Demat account, and a trading account. A Demat account is merely a deposit account used for holding securities for the time you trade. A trading account is necessary to make real transactions. With a trading account, you can invest in a wide range of investment tools such as stocks, commodities, derivatives, and e-gold.

Benefits of a demat account 

The technological strides made in the last few years has led to a lot of benefits to holding a demat account:

• Traders can make a transaction at their convenience, making it convenient and time-saving.

• There is no tedious paperwork required to register transactions.

• No risk of theft, delays, or forging of physical copies of share certificates, bonds, etc. since the securities are stored in electronic form.

• You have a single integrated platform for holding debt as well as equity instruments.

• Automated credits made to registered demat accounts in case of bonus, splits, mergers, consolidations, etc.

• Eliminates need for multiple communications: every stakeholder is notified of the transaction through electronic alerts removing the need to contact the company, trader, investor.

• Address changes are updated with every company invested in by the investor through the Depository Participant.

• One single share can be bought/sold unlike earlier when shares were transacted only in lots.

• Removal of stamp duty costs which were otherwise associated with physical records of securities has led to significant reduction in the cost of trading.

Key elements of a demat account

There are four key elements:

• Depository

There are two authorized depositories operating in India i.e. Central Depository of Securities Ltd and National Depository of Securities Ltd. These two institutions electronically hold pre-verified shares.

• Depository Participant (DP)

Any financial institution that is registered under SEBI can act as an agent of the Depository and conduct transactions for the investor. Any depository service has to be channeled through the DP. A DP can be a financial institution, a scheduled commercial bank, a foreign bank operating in India (RBI approved), a stockbroker, a clearinghouse, a state financial corporation, a share transfer agent, a non-banking financial company, etc. SEBI assigns every DP a unique code.

• Investor

The investor is the individual and is the owner of the securities. In this case, the person holding the demat account is the investor.

• Unique ID

Every demat account has a unique 16-digit identification number which ensures smooth and transparent processing of securities.