Meaning of Demat Account?
A Demat account is a place where investors can hold their shares and securities in an electronic form. Earlier, when an investor had to purchase or sell any shares, she had to be physically present at the exchange. The process was lengthy, with lots of paperwork involved and a very good chance of being handed over a fake copy of shares. With time and increased digitalisation, the Securities Exchange Board of India (SEBI) introduced a Demat account to convert the securities in an electronic form. Demat refers to the dematerialisation of account, which means conversion of physical shares into electronic ones. Conversely, as per your requirement, you can also convert your electronic shares to physical forms.
How to Operate a Demat Account?
Just like a bank account where the transactions are recorded in the bank passbook, any purchased or sold shares will be credited to or debited from the beneficiary’s Demat account respectively. The investors also have the option to open a demat account without having any securities in it, just like a zero bank account.
Facilities offered by Demat Account
1.Seamless transfer of shares: With Demat accounts, the shareholders will be saved from paying transfer costs and other types of payments that were required during the physical transaction of shares and securities. You just have to transfer the e-form of securities with the help of Delivery Instruction Slip (DIS).
2.Collateral for loans: The investors and traders can also use the Demat account by pledging the securities stored in it as collateral while applying for a loan from the bank.
3.Easy transfer of dividends: Companies announce dividends periodically and it can now be easily credited to the investors Demant account from the broker’s (Depository Participant) pool account. The e-transfer makes the process less time-consuming and easy to keep a tab on.
4. Ease of access: The Demant account can be accessed from any electronic device such as laptop, tablet, mobile phones and desktops.
How to Open Demat Account?
To open a Demat account, one needs to dematerialise their shares by approaching a Depository Participant (DP), such as a broker. There are currently two Depositories -- National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI. The DP is an agent which acts as a bridge between the depository system and the needs of the investors. Documents needed for opening a Demat account are as follows:
1.Keep Proof of Income, Proof of Identity, Proof of Address and passport-sized photographs with you.
2.After choosing your DP, fill the account opening form and attach all the photocopies of all documents required.
3.Keep original documents for verification.
4.After online and offline verification, your shares and securities are converted into electronic form and kept safely in your Demat account for any transaction, debit or credit.
5. There is no minimum requirement of shares before opening a Demat account.
Conclusion
The need for a Demat account in a world that has gone online to such an extent is high. The uses of a Demat account are many and therefore having one has become the need of the hour for those interested in undertaking stock market transactions.
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