What is a Demat Account?
If you want to invest in the stock market today, you need two accounts - Demat and trading account. For the purpose of ease, the Securities Exchange Board of India introduced a Demat account to digitalise the stock buying and purchasing documents. Demat refers to dematerialisation of account which means conversion of physical shares into electronic ones. These shares and securities are securely stored in your Demat account - just like money in a bank account. An investor would choose to open a Demat account for ease of access and swift transactions at a time when the global market is quickly turning digital.
Benefits of Demat account
1. Cost-cutting -- With Demat accounts, the shareholders will be saved from paying transfer costs and other types of payments during the physical transaction of shares and securities.
2. Instant work, less paperwork -- Just like e-transfer of money from one bank account to another, electric shares and securities can be bought and sold instantly with negligible paperwork.
3. Automatic dividend credit -- When you open a Demat account, you also link your bank account with it. This essentially means that any profit (dividend) the company you hold your shares with, gets directly transferred to your account. No hassles, no physical presence at the exchange or company’s office needed.
4. Reduced chance of fraud -- When one goes on to dematerialise their shares, it essentially means converting all the documents into e-papers. This means that it becomes difficult for your documents to get stolen. Forgery of signatures becomes impossible. This makes Demat account an essential service to have.
How to Open a Demat Account?
To open demat account, one needs to dematerialise their shares by approaching a Depository Participant (DP). The Depository Participant system will allow you to hold your securities in an online account in e-format post verification. One of the important features of the depository system is to act as a bridge between the company and the investors by maintaining the details of the record of the securities owned by the investors in a book-entry form.
Advantages of Depository System
Before one attempts to understand the advantages of the depository system, it is essential to know what it means. The depository is an organization that keeps the securities in an electronic form at the behest of the investors. They do it with the help of a registered Depository Participant (DP). The DP is an agent which acts as a bridge between the depository system and its advantages and the needs of the investors.
There are currently two Depositories - National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.
Conclusion of Demat Account
It is essential to have a Demat account in today’s time when transactions have swiftly moved online, and rightly so. Having a Demat account through a DP helps the investors in hassle-free experience of securities transactions and dividends earnings.
Related Blogs: Factors to keep in mind while opening a Demat account | Want to Open a Demat Account? Here's What You Should Know | What is the Minimum Amount required for Opening a Demat Account