We all know about savings accounts with banks. They are a safe place to deposit our money. These accounts protect our funds from theft or misuse. Also, the money deposited can be easily accessed at any time. Like banks have savings accounts, stock markets have demat accounts, where instead of money, investors’ shares and securities are stored in electronic format. They keep them safe from theft, fraud, and mismanagement.
In this blog, let’s understand what a demat account is, its features, types, and benefits in simple language.
What is a Demat Account?
The full form of a Demat account is a dematerialised account. It provides the facility of keeping shares and securities in an electronic format. It is a form of an online portfolio that holds an investor’s shares and other securities. It has eliminated the need for holding and trading physical share certificates. Also, demat accounts have reduced the risk of theft, damage, and malpractice by storing securities in electronic format.
The National Securities Exchange (NSE) first introduced demat accounts in 1996. At the time, this system was new, and the account opening process was manual, and it took investors many days to activate it. However, times have changed, and now you can open demat account in just 5 minutes. The whole process is end-to-end digitised.
As of March 2024, the total number of demat accounts in India has reached 15.1 crores. There was a significant increase in new demat account openings in March 2024, with 3.1 million new accounts added, and this trend is continuously rising.
How Does a Demat Account Work?
Demat accounts are maintained by depository participants or DPs. There are two main DPs in India: National Security Depository Limited (NSDL) and Central Depository Securities Limited (CDSL). Here is how the demat account functions:
- A demat account holds shares and securities in electronic form. It makes them easier to manage than physical certificates.
- Stockbrokers or banks may charge fees for opening and maintaining a demat account throughout its use.
- The demat account is usually linked to a trading account through which you can buy or sell shares.
- When you place a ‘buy’ order, your depository participant (DP) forwards it to the stock exchange.
- The stock exchange matches your ‘buy’ order with a sell’ order from another trader.
- The matched order is sent to a clearance house to settle the trade.
- After settlement, the shares are credited to your demat account by the end of the trading day, and the seller’s account is debited for the same number of shares.
A web trading platform allows investors to execute trades and manage their portfolios online, offering real-time market data and analysis. By integrating a Demat account, users can securely hold their securities in electronic form, simplifying transactions and enhancing investment efficiency.
Features of Demat Accounts
Easy Access
A demat account gives you quick and easy access to all your investments and account statements through online banking.
Simple Conversion of Securities
You can easily convert your physical share certificates into an electronic format, or vice versa, with the help of your depository participant (DP).
Receiving Dividends and Benefits
Dividends, interest, and refunds are automatically credited to your demat account. Updates like stock splits, bonuses, and public issues are managed electronically through services like Electronic Clearing Service (ECS).
Easy Share Transfers
Transferring shares has become more accessible and convenient with a Demat account.
Liquidity of Shares
Due to Demat accounts, selling shares and getting money has become faster and easier.
Loan Against Securities
You can take a loan using the securities in your demat account as collateral.
Freezing the Account
If needed, you can freeze certain securities in your account for a specific time. This prevents any transactions related to those securities during that period.
Types of Demat Accounts
Here are the different types of demat accounts:
Regular Demat Account
A regular demat account is the most commonly used by Indian residents. It holds and trades shares and securities electronically. Also, apart from securities, it provides access to bonds, mutual funds, and government securities.
Repatriable Demat Account
This account is for non-resident Indians (NRIs) who want to invest in India. The repatriable demat account lets NRIs transfer funds outside India. It requires linking with an NRE (Non-Resident External) account.
Non-repatriable Demat Account
The non-repatriable demat account is also for NRIs but does not allow the transfer of funds abroad. Instead, it is linked to an NRO (Non-Resident Ordinary) account. The funds and investments remain within India. It allows NRIs to invest in the Indian market without transferring money overseas.
Benefits of Demat Accounts
Investors who choose to open an online demat account can enjoy various benefits. Here are some of the most important benefits:
Security of Shares
Your shares are safer in a demat account than in physical form. Physical shares can be lost, damaged, or stolen, but a demat account keeps them secure.
Easy to Set Up
The electronic system of opening a demat account is much simpler and can be set up in just a few hours. It has eliminated many time-consuming steps and made the process faster and more efficient.
Efficient Trading and Settlement
Demat accounts make buying and selling securities easier by using electronic trading. This eliminates paperwork and speeds up transactions.
Remote Access
Demat accounts offer remote access if you have a registered net banking facility with your financial institution. Also, you can access your demat account from various devices—mobile, tablet, PC, laptop, etc.
Online Access and Monitoring
You can check your demat account online. This lets you track your investments, view transaction history, and get real-time information.
Easy Fund Transfers
You can link your bank account with your Demat account to make electronic fund transfers easier.
Nomination Facility
You can benefit from a nomination facility when you open a demat account online.
Conclusion
Overall, a demat account is an essential tool for today’s investors. Gone are the days when people used to buy or sell shares physically by filling out applications. Therefore, you should know every small detail about having a demat account. Demat accounts have undoubtedly made the overall trading or investing experience easy and convenient.
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Frequently Asked Questions (FAQs)
Can a single individual open multiple Demat accounts?
Indeed. The same depository participant (DP) can open multiple accounts. You can open an unlimited number of accounts with a DP.
Is the Demat account safe?
Your demat account is supervised and controlled by SEBI after activation. If the brokers had targeted you for fraud, it would be easy for the regulatory body to find the defaulters. Since everything is transformed into electronic form, you do no’t have to worry about losing or having your investment documents stolen. This indicates that opening a demat account is a safe way to begin trading.
Is it required to provide bank account information while opening a demat account?
When opening a demat account, you must provide bank account information. These details are necessary for communication with issuer companies or Registrars and Transfer Agents (RTAs) to guarantee that any payment owed is directly credited to your bank account. This could apply to interest, dividends, maturity payments, or redemption amounts. Thus, it is recommended that you give accurate details.
