If you’re interested in trading or investing in the stock market, the first ever step that you need to take would be to open a demat account online. One of the primary reasons for the opening of an online demat account has to do with a Securities and Exchange Board of India (SEBI) rule.The rule essentially mandates that securities like stocks of companies be held in a dematerialized form, which can be done only through a demat account. If you’re still confused and wondering as to what exactly a demat account is used for, then continue reading to get the answer.
Here’s where many new traders get confused. Since the demat account is an electronic account, they tend to think that it is used for maintaining money. However, that’s simply not true.
Also known as a dematerialized account, a demat account is where the shares of companies and other securities like bonds and debentures are stored in an electronic form.
Think of it like this. When you deposit money into your bank account, it is stored, not as physical money, but as an electronic record of entry, right? This is exactly what happens in the case of a demat account as well.
When you buy the shares of a company, they are credited to your demat account and will show up when you log into your account. And when you sell the shares of a company, they’re automatically debited. Just like an online banking transaction.
Apart from helping you store the shares of a company in an electronic form, an online demat account offers several other functions and benefits. Here’s a quick look.
1. Since demat account trading is completely electronic, it facilities quick and easy share transfers.
2. A demat account enhances convenience and makes the entire process of share trading safe and secure.
3. It completely eliminates risks such as transfer of fake share certificates, theft, mutilation, and non-deliveries.
4. It helps cut down on unnecessary costs associated with physical share certificates.
The functions and benefits of an online demat account that you saw above are merely illustrative and not exhaustive. And as you’ve already seen, an online demat account has nothing to do with money at all.
All that it does is store shares and other securities electronically. All of the monetary transactions in share trading activities happen only through the trading account and don't involve the demat account whatsoever. So, now that you’ve been briefed, go ahead and open a demat account online for yourself. The process is incredibly easy and takes only a few minutes.
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