In India, Demat accounts ideally are held by one of the two depositories – NSDL and CDSL. Shares that are bought and sold in the stock market are not traded or stored in physical or ‘material’ form, but in a dematerialised electronic format. Storing shares in an electronic format is made possible by opening an online demat account with a Depository Participant (DP) that are members of either NSDL or CDSL. In general, these DPs could be banks or stockbrokers and the Demat account opened with DP is termed as Client Demat account or Client Beneficiary account.
Demat holdings account or Client beneficiary account, simply put, is a beneficiary Demat account that holds a client’s shares as clear and updated balance.
Trading in shares takes place using two accounts – a trading account with a broker and a Demat holdings account with a DP. When shares are bought from the market, they are transferred through the broker from the exchange in its Pool account after two days from the trading date. If the funds in the client’s banking account are clear, then the shares are transferred to the Client beneficiary account or the client’s Demat account. These clear holdings are termed as Demat holdings and the client is eligible for any bonus, dividend, rights, or any corporate actions on these held shares.
Generally, it is advisable to have both the trading account and the Demat account with the same depository or entity to avoid any settlement issues.
Once the shares are successfully transferred into your Demat account after 2 days from the trading date, it is automatically reflected in your Demat account statement. A Demat account statement can be broadly classified into two types:
1. Statement of Accounts that provides a detailed description of transactions that took place in a Demat account.
2. Statement of Holdings that summarizes all the assets held in a Demat account for a given date and provides detailed segregation of the status of securities in the account, such as total current balance, free balance, Locked in Balance, and Pledge Balance.
It is important to monitor the statement of Demat holdings regularly for the reasons stated:
1. While the transfer of shares to the client account happens within the stipulated time from the trading date in most cases, one cannot rule out any chance of error during transfer. In few cases, the broker might keep the shares in the brokerage firm’s common pool account and utilise them to fulfil the margin needs of other clients, leaving the actual client with a possibility of losses from his or her investment.
2. The broker could be using a client’s shares from the common pool account to fulfil his firm’s margin requirements with the exchange. Subsequently, when the market falls steeply, the client’s shares are susceptible to the risk of being sold by the exchange, as the broker would be unable to show additional margin to the exchange within time.
3. As a consequence, the client is also prone to loss of dividends, and any other corporate action benefits for his shares kept in the broker’s common pool account.
A Demat account statement allows investors to verify their stock market investments and their status. Thus, it is extremely important to register with a reliable brokerage firm that sends its clients the Demat holding statement regularly via email or SMS. Having an online Demat account also comes in handy in promptly monitoring the Demat account holding statement without depending on a broker. You can now view your Demat account statement directly by visiting the NSDL or CDSL web portals where your Demat account is registered.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account