If you are someone who is interested in stocks and equities, you must have heard of Demat accounts. Demat accounts are used for buying and selling shares and participating in the commodity markets. But what is so special about Demat accounts and how are they different from a normal bank account? Why does one need a special Demat account to trade in equities? Read on to find out the answers to all these questions.
Demat is short for dematerialized. Until the mid-90s, buying and selling of shares in India happened in physical form, which meant that one placed an order over a phone or through the post and received shares in physical form. With the arrival of online trading, the process of dematerialization of physical shares started and soon, all trades in the Indian stock markets began happening in the dematerialized form, making physical shares redundant. A Demat account then is simply an account where your shareholdings are stored in dematerialized form.
The process of dematerialization has the following aims and objectives:
1. Ensuring Safety and Security of your Holdings – Unlike physical shares, your dematerialized holdings are safe from wear and tear or the risk of getting lost or stolen.
2. Enabling Ease of Transaction – After opening a Demat account, you can buy and sell shares with the click of a button making trading easier and faster.
3. Preventing fraud or forgery – Unlike physical shares, equities lying in your Demat account cannot be forged, nor can anyone impersonate the holder of the equity, making trading safe and secure.
4. Faster Settlement – With the process of dematerialization, Indian stock markets have been able to achieve a T+2 settlement time, i.e. all settlements are made 2 days after the transaction date. This is a remarkable improvement over the paper trading days.
Before opening a Demat account it is important to select the right broker. One must thoroughly research the features and benefits being provided by various brokers along with the brokerage charges being levied by them. Reputed brokers such as Motilal Oswal not only have low brokerage charges but also offer an easy and hassle-free experience of opening a Demat account. All that is needed for opening a Demat account is filling up a simple application form and providing your KYC details such as Aadhar and PAN card. Once your bank account is linked with your Demat account and your Demat account information is verified, you can start buying and selling shares with your Demat account.
The process of dematerialization in the Indian stock markets has replaced physical stock trading with online trading through Demat accounts. Demat accounts offer a slew of benefits such as safety, ease of transaction, and faster settlement of trades. Demat account opening procedure with reputed brokers is simple and hassle-free, requiring only the verification of one’s KYC and Demat account information, and the linking of one’s bank account with the Demat account. It is important that while opening a Demat account, one perform meticulous research about all the brokers and the benefits being offered by them.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account