The first time you decide to invest in bonds, stocks, shares, or other financial securities, the question asked is- do you have a demat account? You may wonder “what is demat account meaning” or how it can help you when you buy, sell, or even trade any financial securities.
Demat accounts hold your financial securities such as equity or debts. Instead of holding on to physical records of your investments, they are stored in electronic form in a demat account. You can access your demat account just like your bank account to view the credits, debits and balance.
An investor can hold different financial securities such as shares, stocks, initial public offerings, e-gold, bonds, non-convertible debentures, government securities, exchange-traded funds, mutual funds, etc. You can open a demat account with a zero balance, too.
Advantages of a demat account
There are numerous benefits of having a demat account over holding physical records of your financial securities. These include:
- No risk of theft, damage, or fraud as all the securities are in electronic form and a centralised depository.
- Accessible at all times from anywhere; minimal physical effort required to carry out transactions.
- Single platform to hold all your different investments (debt or equity) for easy accessibility.
- You get automatic updates on demat account; no need to manually register changes to the status of financial securities.
- Can buy, sell, trade even one share, unlike in physical market places where securities are traded in only lots.
- The investor does not have to pay any stamp duty as there are no physical records of traded financial securities needed. This helps reduce costs for the investor.
- Minimal to no tedious paperwork for making transactions.
The various advantages offered by a demat account has led to a spurt in the number of investors and traders who wish to open and operate their own demat account as opposed to holding physical records of financial securities.
Uses of demat account
A lot of people are unaware of what is demat account and what is the use of it. Now that you know what a demat account is, let’s take a look at its uses:
– Safe holding
The biggest use of a demat account is having your precious financial securities held in the safe confines of a national depository. Instead of worrying about keeping the physical records of your investments safe from thieves, fire, water damage, you can rest assured that your stocks and shares are in a central electronic location which is safeguarded with heavy encryption.
An investor may hold physical records of their shares, stocks, bonds or other financial investments. If they wish to convert these records into electronic form, they can opt for dematerialisation. Once the investor has a functional demat account, they can fill a Demat Request Form (DRF) to start the process of converting the physical records of their investments into a convenient electronic form. The DRF is available with every Depository Participant. Every form of security has its own International Securities Identification Number which means that the investor will need to fill out a separate DRF for each security they wish to dematerialise.
Once the DRF is filled, the investor has to submit the form along with the physical records of the investment to the DP. The next step involves the DP verifying the information on the DRF and updating the demat account accordingly. A demat account can also be used to ‘rematerialise’ i.e. convert dematerialised securities to physical records in case a need arises.
– Investment transfer
A demat account can facilitate transferring of financial securities from one account to another. All the investor has to do is fill out a Delivery Instruction Slip with accurate information such as investor details, and the transfer can be facilitated. There is no restriction on the kind of securities that can be transferred from one demat account to another.
– Avail a loan
The investor’s holdings in their demat account can be used as collateral while applying for a loan. Just like your physical assets such as car, house, or jewellery, the investments held in your demat account will serve as security through your loan term.
– Corporate actions
It can be tedious to keep a track of all your investments such as shares, stock, bonds. When there is a bonus issued, split in shares, mergers or consolidations happening, it directly affects the status of your securities. A demat account ensures that all your demat securities are updated according to these changes made by the company whose shares or stocks you hold.
The NSDL allows the account holder or investor to carry out a transaction online and submit the e-slip to their concerned Depository Participant to close the transaction. This makes it easier for the investor to make transactions without too much delay.
– Freeze account
Imagine a scenario where you have misplaced the physical copies of your share certificates. It would have been a painstaking process to inform the company of the loss, file a complaint, get copies reissued, and deal with additional costs such as stamp paper duty. However, with a demat account, there is no concern of you misplacing or losing your securities. Even if you need to freeze your investment for whatever reason, you can simply do it by temporarily freezing your demat account.
If you are looking to open a demat account, you can do it either offline or online.
How can you open a demat account?
Gone are the days when you had to wait in a queue to buy, sell, or trade in financial securities. Today, everything is more efficient and smoother as you can open a demat account easily.
The process to open a demat account offline includes:
- Select a Depository Participant registered with the SEBI. You can compare their services and applicable fees before arriving at a decision.
- Fill the associated application form.
- Provide the necessary KYC documents which includes but is not limited to a proof of identity, proof of address, bank account details, PAN card details, demographic details.
- Provide the original KYC documents during the in-person verification process carried out by the representative of the Depository Participant you have chosen. You will be provided a list of rules and regulations regarding operating a demat account, along with a list of applicable fees such as account opening fee, account maintenance fee, etc. that you will need to pay.
- Once verification is done, you will receive your account details, and your account is operational.
- Opening a demat account online is easier. The steps include:
- Select the Depository participant.
- Head to their official website or app and fill in the basic information form.
- Receive an OTP on your registered mobile number.
- Feed in the OTP on the website form.
- Upload necessary documentation.
- Your demat account is ready to be operated!
A demat account is a great way of managing your financial securities. Invest your time in choosing the right type broker for your demat account needs, and open a demat account soon!