While most people own an account with a bank in some or the other form (such as a current or savings account), there exists a lack of understanding regarding the benefits that come with the ownership of a Demat type of account. According to data by SEBI, the total count for demat accounts of India, for 2018, stood at 38.4 million. This is a significant number, however, comparing this with the fact stating that more than 80% of the population in India has a current or savings account, it is possible to understand why a demat account is needed.
One of the prime benefits of any demat account includes facilitated trading. Opening of this account is the first and foremost step for share trading. Despite an ardent desire of investing in securities and shares, many people have no idea whatsoever when it comes to the necessary accounts for commencement of share trading. Understanding of the numerous perks and importance of demat accounts will help turn these things around.
Understanding about demat account:
You need to open an account with a DP(Depository Participant) before trading in shares, which could be:
It is also called a dematerialised account . In dematerialisation of shares, all securities and shares that you purchase in the physical form are converted/dematerialised, and stored in an electronic format.
Previously, physical possession was given to investors for their shares. But, the (SEBI) Securities Exchange Board of India passed the regulation according to which a demat account is made compulsory for trading in stock markets since 1966.
A dematerialised account is very similar to a bank account. Every time a purchase or sale is made, the amount of shares gets either credited or debited from the account.
Here are 7 reasons for having a demat account:
1. Easy accessibility:
Online demat account is easily accessible through smartphone, laptop or tablet for monitoring investments.
2. Easy rematerialization and dematerialization of securities:
Any security is easily convertible from physical form into electronic format . If needed, they are again convertible to physical form via instructions to DP.
Opening of a dematerialised account could prove as a safe choice. When kept in a physical form, share certificates can become subject to potential damage, theft or loss.
4. Facilitates the opening for trading account:
Demat account stores securities in the electronic format, engaging in trading via this account is enabled through an online trading account. You can sell or purchase securities with this free demat account.
5. Ease in carrying out of transactions:
You don't need to go to the office of the company physically to deal in shares. Transactions can be processed at a click through online mediums.
Other benefits of demat account include:
Link between demat account, bank account and trading account:
All three kinds of accounts are required for trading in the share markets. When an order of purchase or sale is made after quoting dematerialised account number, transaction would take place through the trading account. Once the order gets processed in the respective stock exchange, requisite money with your bank will be either credited or debited.
It becomes necessary for everyone to have a dematerialised account, along with a bank account. It allows for taking advantage of a prospering capital market for starting a journey towards creation of wealth by investment in equities, commodities and mutual funds.
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