The Covid-19 pandemic ushered in a boom in the stock market, with a fleet of new investors flooding in to get a return on their money and grow wealth at a time of great financial uncertainty. This naturally resulted in a steep rise in the number of newly opened demat accounts. Yet, for those who prefer relying on more safe bets such as FDs, it might not make sense as to why going through an online trading account opening process might be helpful.
Let’s take a look at how you can benefit from having a demat account.
If you wish to invest in the stock market directly, you will have to have a demat and trading account, with the former functioning as your vault for your shares, and the latter as your access pass to the stock market. With a demat account therefore, you are now fully equipped to trade in the stock market, and take instant delivery of any shares etc that you buy (contingent to DP criterion, ofcourse).
You should note that in most cases a demat account is needed to invest directly in the stock market. If you choose to invest through mutual funds, a demat account is not necessary but it is advisable to go through the demat route. This is because you will have all your investments in one place. Whilst investing directly may seem intimidating and complex, it can also help ensure you have absolute control over your investment portfolio.
Demat accounts have effectively eradicated a number of user experience issues, such as bad deliveries and forgeries, that plagued the world of physical share certificates. With share certificates now dematerialized, or turned into digital form, they are now stored in your demat account and cannot be forged or stolen from you. This also means that you can store instruments such as government bonds and other securities in digital format.
IPOs are an interesting perspective to adopt when it comes to a demat or online broking account. With IPOs, you only apply to buy the stock when it is publicly listed, though there is no selling that is planned. In this unique scenario, you need an online broking account online in the form of a demat account, and if you are granted the IPO allotments then they will be stored in your demat account. If you wish to sell at any point however, you will have to go through the online trading account process and get yourself a trading account.
Investing in IPOs can be a great way to increase wealth. Whilst risky, because these companies are typically untested by the public market, a strong company with a positive outlook will tend to rise over time, meaning that as an investor in their IPO, you will have gotten in early and make the most of the stock’s appreciation.
Apart from the returns you receive from trading shares, companies also give out additional benefits to stockholders such as dividend payments. These payments can also be facilitated through your demat account, making the process all the simple.
Having a demat account doesn’t mean that you must immediately begin investing in the stock market. There are a number of benefits to having a demat account that might not require your active participation. On the other hand, these accounts also come with AMC, transaction and other charges, therefore you should have some idea of what you want to do with your money, before you open a demat account online.
Related Articles: Why is a Demat Account a must for 21st Century Investor | Evolution of Demat and Trading Account in India | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account