Demat Account: Concept, Benefits, Features & more

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Dematerialized accounts or Demat Accounts were introduced to make stock market trading easier and monitor holdings efficiently. However, as time went by, it became more advanced with more features to ease trading and holding investments.

Let us understand what is Demat account and the use of it.

What is Demat Account?

With the Demat account, the entire procedure of investing, trading, holding, and monitoring becomes convenient, cost-efficient, and faster. It’s is very similar to your bank account and works in a similar way. The only difference between a bank account and a Demat account is that a Demat account holds securities instead of cash. A Demat Account holds securities in the form of shares, bonds, mutual funds, government securities, or exchange-traded funds. Demat account avoids the hassle of all the paperwork you need to make trading transactions.

Some of the best demat account in India helps you trade in multiple financial products like –

Mutual Funds

You can open a demat account to invest in various mutual funds. You can invest your money in a mutual fund company and they in turn invest your money in various securities.

Exchange Traded Funds

When you trade securities on exchange it is called exchange traded funds. You trade securities that are listed on stock exchanges.

Shares

You can also buy or sell shares using a demat account. You can hold all the securities or shares you buy in your demat account.

Bonds

There are many types of bonds where you can invest in. You can carry this bond investment using your demat account.

Why Do You Need Demat Account?

Maintaining securities in the physical or electronic form is the choice of the investor however monitoring physical certificates can be tedious as compared to the dematerialization of such certificates.

With the evolution in technology ways of trading have also evolved, so nowadays you will find a lesser number of agents or people trading physical shares. So, it can be difficult to sell securities in physical form. Everyone around prefers the dematerialised securities over the physical certificates hence trading in dematerialised securities is a popular practice and commonly accepted. Hence, to trade your dematerialised securities you will need a demat account.

For more information you can read the demat account benefits listed below.

Benefits of Demat Account

Easy to Hold – When it comes to maintaining physical certificates it is a very tedious job. Keeping track of their performance adds to the responsibility. Demat account holders make it more convenient to hold and track all their money and investments through a single account.

Immediate Updates – You can find all the updates related to your account or stock prices in one place. Easy to access you can review stock performance from anywhere.

Lower Costs – When the traditional method was popular it involved physical certificates. These certificates required several additional expenses like stamp duty, handling charges, and other such expenses. Now that demat account eliminated holding of these physical certificates these extra expenses are eliminated as well.

Reduction in Delivery Risks – When everything becomes digitalized the risks of losing physical papers are eliminated. Hence it is better to hold your shares in a demat account than in the form of physical paper. It also eliminates the risk of forging documents when you maintain everything online. Demat account guarantees 100% safety and security of all the shares held in your demat account.

Following features of a demat account makes it more efficient than our traditional method of trading.

Features of Demat Account

Easy share transfers – Using a delivery instruction slip (also known as DIS) investors can transfer their securities. These slips make buying or selling shares more efficient and easier. These slips enable the investors to provide all the details that are required for the smooth execution of any transaction.

Hassel Free dematerialisation & rematerialisation – Demat account allows easy dematerialization and rematerialisation of all the physical certificates into electronic form and vice versa. To do these holders have to provide instructions to the depository participant or DP. Similarly, all-digital securities can be converted into physical certificates as well.

Loans against securities – There are many financial institutions that offer loans against securities that the borrower has in his demat account. You can use your securities as collateral while availing of loans by these financial institutions.

Freezing Demat accounts – Demat account holder can also freeze their demat account as per their convenience for a certain period. This is usually practiced when unexpected debit or credit into the account is to be prevented. By doing this the holder halt any money transferring into the demat account.

Multiple accessing options – For easy accessibility, you can access demat account via various modes. You can access your demat account via a computer, a smartphone, or any other type of smart device. All you need is a good internet connection for a better user experience.

SPEED E-Facility – When you trade using your demat account it offers faster transactions unlike your traditional method of trading. The National Securities Depository Limited (NSDL) allows users to send instruction slips electronically rather than transferring physical slips to the DP. This requires lesser time and is more convenient and efficient.

Corporate benefits & actions – If the companies offer dividends, refunds, or interest to their investors, these benefits are automatically available to the Demat account holders. In addition, corporate actions like bonus issues, right shares, or stock split are automatically issued via Demat account of all the shareholders.