Objective, Importance and Benefits of a Demat Account | Motilal Oswal
Objective, Importance and Benefits of a Demat Account | Motilal Oswal

Objective Importance and Benefits of a Demat Account

The primary objective of opening a Demat account is to allow you access to the securities market in order to trade. A Demat account is backed by either the NSDL or CDSL which in turn are regulated by SEBI, and the account unique to each individual allows you to store your securities that you purchase. However, this stands to be a very basic summarization of the importance of a Demat account. Based on the type of trader or investor you are, your investment capability and risk appetite among other variables, the functions, ability and benefits of Demat account can vary.

1. The transfer of securities:
A Demat account is aimed at making as efficient as possible the transfer of securities from one Demat account to another. The rapid digitization of the securities market means that prices fluctuate every second with millions of trades being made constantly.A Demat account aims to minimise the time taken to successfully complete a transfer of securities. This ability to complete the task at such a pace is one of the many benefits of  Demat account.

2. Security of funds:
Another objective of Demat account is to ensure that the securities it holds are protected. Due to it being digital, the risk of losing share or bond certificates, damage to the certificates as well as forgery is completely avoided. Once a transfer is complete, you are logged as the sole owner of the securities you have purchased. The ability to completely avoid any discrepancies as far as securities are concerned highlights the importance of Demat account.

3. Unlimited Transfers:
Previously, there were a number of rules and restrictions on the transfer and trade of securities in the stock market. With the help of technological advancements, the now digital Demat accounts allow investors a virtually unlimited ability to transfer their securities, meaning they can purchase how many securities they want, at what price and at what quantity, devoid of any such transfer limits that existed in the past. This also proves to be a good benefit of Demat account.

4. Cost-effective:
There are considerable economic benefits of a Demat account besides the returns you could make on the market. The first is that the elimination of paperwork makes the transfer of securities between Demat accounts an extremely efficient process. Additionally, this paperless process also avoids the requirement of purchasing share transfer stamps, eliminating the need for stamp duty.

Conclusion

A Demat account is a necessity for trading in the securities market. Over time, the market and various depository participants have responded, making the process of attaining and operating a Demat account highly efficient and simple. There are a number of benefits of Demat account, and while the main objective of Demat account remains to be enabling the holding and transfer of securities for investors/holders of the account, it now offers an efficient and optimised trading experience. The importance of Demat account is especially highlighted when one considers how far it has come since times of forgery, fraud, the inability to purchase securities in odd lots and loss of share certificates being a real possibility, which is no longer the case.

Related Articles: Procedure of Purchasing and Selling Shares Through Demat Account | Is Intraday Trading Possible Without A Demat Account? | Importance of Monitoring your Demat Holdings | Why Every Indian Must Have A Demat Account Along With Bank Account | How Do I Add A Nominee To My Demat Account  

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