If you’re new to the world of the stock market, there’s a high chance of you coming across the term ‘Demat account.’ Have you ever wondered what it is? That’s exactly what we’re going to get to know. In addition to that, we’ll be taking a good look at the features and benefits of Demat accounts as well. So, without further ado, let’s go ahead and first answer the question, ‘what is a Demat account?’
Demat accounts have been around for a while now, and most people know what they are, in a very general and basic sense. However, some individuals are still unclear about specific Demat account nuances and, therefore, hold themselves back from opening one. Is this account like a bank account? In a way, it resembles a bank account. If you wish to trade in the stock markets or invest in other securities like debentures, a Demat account suits your purpose perfectly. In fact, the regulatory body that determines the rules for trading and investing in the markets, SEBI, or the Securities and Exchange Board of India, has made it necessary for all investors of the stock markets to open Demat accounts. They not only facilitate transparency which is what SEBI aims for but the ease of seamless transactions done quickly and easily online. According to reports in leading newspapers, Demat accounts have jumped in number, with 10.4 crore Demat accounts reported at the end of 2022 (Demat accounts in India cross 10 crore for the first time - Times of India (indiatimes.com). This should give you some idea of how many Indians see Demat accounts as fruitful ways to start their foray into the markets. It is important to note that people from Tier 2 and Tier 3 cities are jumping on the bandwagon of opening accounts too.
A Demat account is an electronic account that you open with a depository like the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL). Demat accounts are not opened by these two depositories directly by an individual. Rather, a DP (depository participant), which is your bank or your broker, opens a demat for any individual on their behalf through these two depositories. Authorized brokers and banks are the bodies that can do this. A Demat account helps you store the records of financial securities, such as shares, in an electronic format. Just like how a savings bank account is used to hold your money electronically, a Demat account is used to electronically hold the shares and other securities that you own.
Now that you know the answer to the question, ‘what is a Demat account?’, let’s try to understand how it works via an example.
For instance, when you purchase shares of companies in the stock market, those shares get credited to your Demat account. And when you sell those shares, they get debited from there. See how similar it is to your regular bank account?
There are many user-friendly features of Demat accounts that make financial transactions easier. Here’s a preview.
Demat account meaning must have become clearer now that you’ve seen the features of Demat accounts. It is time to take a look at some of the benefits of Demat accounts.
Thus, if you are beginning your investment journey, it is important to understand all the aforementioned features of a Demat account. This will give one clarity while placing trades and make processes much smoother. In case you are still wary of having your holdings held in a digital safe like a Demat account online, you can always hold physical shares, but you will face hassles with these. As your trading and investing are done online too, you can be assured that there is security and transparency in online transactions with any Demat account you open with a reliable broker like Motilal Oswal.