Why the Rise in Opening Free Demat Accounts is a Positive Sign - Motilal Oswal
Why the Rise in Opening Free Demat Accounts is a Positive Sign - Motilal Oswal

Why the Rise in Opening Free Demat Accounts is a Positive Sign

A record 14.2 million fresh Demat accounts were opened by investors in FY2020-2021 in India. This figure was triple the number of new Demat account openings in the previous fiscal. In fact, in March 2021 alone, 1.9 million Demat accounts were created indicating the highest-ever monthly increase. There were several reasons for the rise in the number of free Demat accounts, informed by both the market as well as macro factors. Here’s a look at some of these reasons and why such a rise is a positive sign—

  • Participation from Tier II and III cities

The penetration of the equity markets reached smaller cities over the past year, as lockdowns forced people to stay at home and gave them the time to research and think about investing. Many even sought to supplement the hit taken by their income because of the pandemic with gains made from trading in the stock market. The availability of free online Demat and trading accounts, along with high-speed internet, smartphones and tablets, has propelled this trend further.

  • Low trade cost

Unlike trading through a broker, online trading does not command a high transaction fee. Mobile applications and the web now offer trading services at low costs, along with the required research material that educates and empowers investors. Equipped with these tools and a free Demat account, investors are taking more interest in trades that deliver short-term gains.

  • Availability of innovative investment products

The internet has enabled brokerages to offer competitive, innovative investment services at low maintenance costs, per-trade brokerage and discount brokerage. As free Demat accounts become more ubiquitous, investors with varying risk-taking capacities and investment goals can choose from a wide variety of options.

  • Single storage solution

Serious investors tend to own financial assets across classes such as bonds, unit-linked insurance policies (ULIP), debentures and ETFs along with shares. A free Demat account provides a free and convenient method of storing all assets in one place. Managing, tracking and trading these assets and filing taxes, thereby, becomes easy.

  • Faster, transparent trades

With a Demat account, investors can place trades in real time safely and securely. Electronic storage of certificates ensures that they are not lost or stolen. Investors can check the movements of prices online in real time as well. Trades made through Demat accounts take only two days to be settled, as against the 14 days it used to take when trades were placed manually. Moreover, there is also a significant reduction in errors that could occur as a result of the manual handling of shares.

Conclusion

The record surge in the number of free online Demat and trading accounts opened in the previous fiscal is indicative of a decided shift from traditional, low-return forms of investment such as gold and real estate to the equity market, especially among young investors. It is anybody’s guess that the COVID-19 pandemic has acted as a catalyst in effecting this shift. The availability of free Demat accounts, however, deserves credit for the market flooding with new investors.

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

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