Demat accounts were introduced in 1996. The landscape of the trading and investing world has changed since. The hassle of trading with physical shares is a thing of the past when issues like theft, loss, forgery, etc, were ever-present. As trading has shifted to electronic and digital trading systems, the current scenario makes it essential for stock market investors and traders to hold Demat accounts. Brokerages and financial institutions offer Demat accounts free of charge, just to benefit traders and investors and draw them in. Nonetheless, there are some pros and cons of free Demat accounts you should be aware of before you get tempted to sign up for free.
Demat Account Benefits
To be sure, if you are an investor, a Demat account can offer you a world of advantages from storing your stocks securely to managing them effectively. Here are the distinct advantages you get by opting for a free Demat account:
- High Security: At the time when stocks were held in physical form, the risk of theft and loss was high. This was because trading was conducted with paper certificates. This would create a huge amount of paperwork for investors and administrative issues too. Moreover, there wasn’t any assurance of recovery. Electronic formats of Demat accounts have proved far safer.
- Quick Settlement: Prior to dematerialization, trade settlement took two weeks due to the sheer physical shifting of shares. With a free Demat account, settlements take 2 work days. This saves time and effort.
- Error Reduction: In the offline, physical settlement of shares, a lot of human error took place. The greatest advantage of a free Demat account is that erroneous trades are prevented, or at least, substantially lessened.
- Transmission Ease: In case of the unfortunate demise of the Demat account holder, the ownership of shares held can easily be transferred to the mentioned nominee. This is only possible with a free Demat account without Demat account charges. This was challenging for legal heirs prior to dematerialisation.
- Financial Assets in One Place: Demat accounts not only store shares of the account holder, but other assets like bonds, debentures, ETFs, unit-linked insurance policies, etc. This makes it easy for investors and traders to manage, monitor, and maintain financial assets. Tax filing is easier too, as financial records are housed in one spot.
- Reduced Costs: Previously, the cost of having a Demat account was high. However, with the introduction of Demat accounts free of charge, many individuals are encouraged to open one.
Demat Account Drawbacks
A Demat account is easy to open. With a Demat account login, NSDL or the National Securities Depository Limited, lets you operate a Demat account through a DP (depository participant). This may be a brokerage or bank. While you get many advantages with a opening Demat accounts free of cost, there are some disadvantages that you should take cognizance of:
- Dubious Brokers: Choosing an honest broker may be a challenge. However, if you do some research and background work, you can find reliable brokers like Motilal Oswal. Brokers should have high standards of transparency in all transactions.
- Churning of Portfolios: Trading and investing is merely a click away online. As a free Demat account facilitates this ease of transacting, traders are constantly trading. Consequently, traders tend to focus more on short-term goals, rather than more lucrative long-term trades in order to create wealth.
- Tech Savvy Requirement: You needn’t be a professional at technology, but you do need some technology know-how to operate Demat accounts. Investors/traders depend on brokers to place orders and bank on their advice. This can result in fraud/misappropriation of funds by brokers.
When you rely on Motilal Oswal to open a Demat account free of cost, you can be sure that you are dealing with a broker whose reputation speaks for itself. You can be assured of only advantages as you secure your wealth creation goals with Motilal Oswal’s experience to back you.
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