What is the use of a Demat account, and why should I open one? If you are an investor who is asking this question, then you should know that it has multiple uses in the sphere of trading and stock investment. Nonetheless, before you know what a Demat account is used for, it is essential to understand what it is.
What is a Demat Account?
Some clues as to the use of a Demat account may spring up when you know what a Demat account is and why you should open a Demat account. In the simplest of words, a Demat account is nothing but a storehouse of your securities. In a Demat account, your securities, whether stocks or bonds, are held in electronic formats, in contrast to physical certificates.
Previously, say if you owned stock of a company, share certificates would be held by you in paper form. Now, in a Demat (dematerialised) account, they are held securely in a digital manner. This ensures transparency, safety and, above all, one place in which to hold your investments. There is also the aspect of the prevention of wear and tear. Therefore, if you wish to invest in the appealing and potentially profitable share market today, a Demat account is mandatory.
What is the Use of a Demat Account?
Just by knowing the key aspects of a Demat account, you have probably gauged what the use of a Demat account is. There are more details about the use of a Demat account you should know. The use and seamless operation of a Demat account gets facilitated by the function of two other vital accounts. These are:
For the purpose of trading (the purchase and sale of stocks and other securities for profit), your Demat account is linked with your trading account. Without this, the trading transaction is not possible. Furthermore, to trade, say in the share market, you must have ready capital. This is if you wish to buy shares. Hence, your bank account is connected with your trading and Demat accounts. Now, in case you end up selling your shares to make a profit, they are taken out from your Demat account to be sold on exchanges through the trading account. Any profits are then directly deposited online into your bank account. Consequently, a Demat account is used for the purpose of trading and storing your securities safely.
Trading and Demat Accounts
A Demat account is opened through a DP, or a depository participant. This is a bank or a brokerage. The depository participant plays a key role when transactions of trading occur. As your Demat account and trading account must be connected for trading, when a request is made to sell a share or buy a share, your DP is responsible for sending this request to the relevant exchange. If you open a Demat account today, you will understand more about it when you actively start trading. A Demat account can be opened and used exclusively online. While you do this, you can turn your attention to investing in an upcoming IPO as well.
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