Dematerialised or Demat account, is a digitized form of account which holds a customer’s portfolios of shares and other securities. It has annulled the requirement of holding physical share certificates. Demat is a trading account which was introduced in India in the year 1996, for National Stock Exchange (NSE) transactions. As per the SEBI guidelines, all the shares and debentures of listed companies need to be in dematerialised form in order to carry out securities transactions in any stock exchange from 31st March 2019.

Selection of the best demat account depends upon various factors such as demat charges, seamless interface, in-depth data analysis, the efficiency of depository participants etc. Demat can also be used to create a portfolio of Mutual funds, ETFs, shares, debentures and such similar stock market assets. This trading Account helps an investor or trader of securities to engage in trading through this account. In simple words, you can go long or short (purchase or sell securities) through your trading account.

Different Types of Demat Account

There are different types of demat account and it’s upon the investor to choose what kind of demat account to openfollowing are the types of demat account: –

  • Regular Demat Account- All the resident citizen of India are allowed to open regular demat account.
  • Repatriable Demat account – NRIs (Non-resident Indians) are also allowed to open Demat accounts of repatriable types. A non-resident Indian can transfer his money from overseas through such accounts subject to a condition that it is linked to an NRE bank account. NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings.
  • Non-repatriable Demat account – This kind of Demat accounts are also for non-residents Indians (NRIs), however, this account cannot be used by the NRIs to transfer funds from abroad. A non-resident Indian has to link an NRO bank account to open this type of Demat account. NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India.

Features of a Demat Account

An Investor who opts to open Demat account can witness various benefits. Here are some of the most common Features.

  • Having demat accounts can eliminate the risk of forgery, misplacement, damage or theft of physical shares.
  • The electronic system of demat account is simple and can be completed within hours. Using a demat account can eliminate several time-consuming operations, making the entire process streamlined and time-saving.
  • An investor is provided with remote access benefit, net banking facility with the concerned financial institution.
  • An Investor is allowed to merge is bank accounts with demat accounts to facilitate electronic fund transfer.
  • Investor who opts to open a demat account with a specific unit of securities in their portfolio can opt to freeze their accounts for a specific period. This facility helps to avoid unwanted transaction into one’s Demat account.

Use & Benefits of Demat Account

  • Anytime Access: As mentioned earlier that the Demat accounts are completely online. Therefore, it can be easily accessed online at any time from any part of the world.
  • Variety holdings: An investor can hold a variety of investments like equity shares, bonds, mutual funds and ETFs under one Demat account, which can be opened even if the investor don’t possess any shares.
  • Frequent Monitoring: Demat accounts provides a facility to monitor the holdings from the comforts of one’s home.
  • Time-Saving: Demat account makes trading of securities very convenient and less time-consuming. An investor can buy, sell or transfer securities in a matter of seconds.
  • Minimum Costs: Unlike physical trading, trading through demat doesn’t involve additional costs like stamp duty, handling charges, etc.
  • Corporate Gains: Dividends on shares, interest on bonds, or refunds reach the Demat account holder without any delay. Be it bonus issues, right shares or stock split, everything gets automatically updated in the Demat accounts.

Conclusion:

When we manage securities in physical form, we expose our self to risk of shares and stocks getting misplaced or damaged. Having a demat account addresses this issue and provides the demat account holder with a safe house for securities as here the securities are stored in electronic format. Thus, an investor need must have a Demat Account to hold his securities in an electronic format. Apart from this, an investor is required to have a demat account to trade in stock markets. Once the Demat and Trading accounts are open, the investor must begin his trading journey with a thorough understanding of the Security market and its instruments. It is always advisable to take the expert counsel as an investment in stocks is subject to high market risk.

Disclaimer: The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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