Demat accounts are critical in today's trading ecosystem, as we all know. Demat accounts were first introduced in India in 1996, and was a watershed moment in the country's stock markets. Demat and electronic trading systems not only simplified the trading process by removing the hazards of fraud, forgery, and loss, but they also reduced the cost of trading.
Although having a Demat account provides access to Indian financial markets, is this the sole advantage? Definitely not! Demat accounts come with a slew of extra advantages and mysteries. As an investor, you should be aware of the Demat account services.
If you are wondering what Demat account services could include, read the following:
The safety and security of all your financial assets is the first and foremost reason behind having a Demat account. Before Demat accounts were introduced, shares were traded in the form of paper certificates which came with the obvious risk of theft or damage. In such a case, recovering duplicate shares was a difficult task.
All of your financial assets are held in electronic form in Demat accounts, ensuring complete security and safety. The chances of dematerialized assets being stolen or lost are extremely slim.
As previously stated, securities were exchanged in the form of paper certificates prior to the introduction of Demats. Since the paper certificates were transmitted from the seller to the RTA and then to the buyer, every securities transaction would take 14 days to settle. Demat accounts have cut the settlement period from 14 to 2 days, saving investors a lot of time and effort.
Trading actual share certificates necessitated a great deal of laborious documentation, which was prone to errors. However, when Demat accounts and electronic trading systems were introduced, the majority of the work started being managed via computers, significantly lowering the risk of errors.
If your investment has liquidity, you may access your money whenever you need it. Your dematerialized investments, such as equities and mutual funds, can be used as collateral to receive a loan from a bank, easing liquidity and monetization even further. Without a Demat account, such advantages are not possible.
You might have the wrong idea that Demat account is exclusively for holding shares. However, a Demat account serves as a central repository for all of your financial assets, including bonds, ETFs, debentures, and unit-linked insurance plans. It is much easier to track and preserve your assets when they are all in one location.
You can easily manage and maintain your accounts and records because you have all of your financial assets in one place. Annual audits and tax filings necessitate the keeping of these records. If your assets were dispersed across multiple accounts or physical forms, this would not have been the case.
The contents of a Demat account can be simply transferred to the nominee of the next of kin in the tragic event of the account holder's death. When you register a Demat account, the service provider will ask for a nominee, who will be the lawful holder of all your possessions after you have passed away.
These are a few lesser-known advantages or secrets of having a Demat account. Demat accounts give you access to and exposure to a wide range of financial assets, not just stocks. A depository participant or a Demat service provider can open Demat accounts on either of the two depositories. Some of the depository participants will also provide you with a free Demat account. You are ready to begin your investment journey once you have set up your Demat account.