Why Every Indian Should Have a Demat Account along With a Bank Account?
While most Indians have a bank account in some form or the other (such as savings bank accounts, or current bank account) there is lack of awareness about the benefits of having a Demat Account. As per data from SEBI, the total number of Demat accounts in India, as of 2018, was 38.4 million. While this is significant, compare this to the fact that over 80% of the Indian population have a savings or current account and you’ll understand how DEMAT accounts are falling short.
One prime benefit of a Demat account is that it facilitates trading. In fact, the first step towards share trading is to open a Demat Account. Despite having an ardent wish to invest in share and securities, many people do not have an idea about the accounts you need to have to commence share trading. Understanding the many perks of Demat accounts could help turn things around.
Understanding a Demat Account:
- Before you start share trading, you have to open a Demat account with a Depository Participant (DP), which can be:
- Brokerage firms
- Financial institutions
- A Demat account is also known as Dematerialised account. Here, the physical shares and securities that you have purchased are converted or dematerialised, and kept in the electronic format.
- In the past, investors were given physical possession of shares. But, in 1996, the Securities Exchange Board of India (SEBI) passed a regulation that having a Demat Account is compulsory to trade in the stock markets. So, if you want to start trading in stock markets like Bombay Stock Exchange (BSE) or National Stock Exchange (NSE), having a Demat Account is a must.
- A Demat Account is similar to your bank account. Any time you make a sale or purchase, the number of shares is either debited or credited from your account.
What securities can be kept in your online Demat Account?
Your online Demat Account can hold a wide variety of securities. Some of them are:
- Shares or stocks
- Initial Public Offering (IPO)
- Mutual Funds
- Government Bonds
- Non-convertible Debentures (NCDs)
Advantages of a Demat Account:
There are manifold advantages of a Demat Account. Some of them include:
You can easily access your online Demat Account through your smartphone, tablet or laptop and monitor your investments.
Easy dematerialization and rematerialization of securities:
You can easily convert any security from its physical form to the electronic format (dematerialization). If need be, they can again be converted to their physical form (rematerialization). You just need to instruct your DP.
Opening a Demat account can prove to be the safe choice. Share certificates kept in the physical form can be subject to theft, loss or any potential damage. A Demat account helps mitigate such risks.
Helps facilitate the opening of your trading account:
While a Demat Account allows you to keep securities like shares in an electronic format, an online Trading Account helps you to engage in trading through this very account. In other words, you can purchase or sell securities through your online Trading Account. While trading in the stock market through the trading account, you have to compulsorily quote your Demat Account number.
Ease of carrying out transactions:
You need not visit the physical office of a company to buy or sell shares. At a click of the mouse, your transactions will be processed. If you are purchasing shares, once you place an order, the shares will be reflected in your Demat Account within two days.
Saving stamp duty:
According to SEBI regulations, there is no stamp duty on transfer of securities which are in the electronic format.
Easy money on the liquidation of shares:
Through your Demat Account, you can quickly receive money after selling shares.
Stock dividends, interest and refunds are auto-credited in your online Demat Account.
Understanding the link between your Demat Account, Trading Account and Bank Account:
Once you want to start trading in share markets, you require three types of accounts: A bank account, a Demat Account and a Trading Account.
When you make an order for sale or purchase after quoting your Demat Account number, the transaction will be carried out through your trading account. After the order is processed in the concerned stock exchange, the requisite money in your bank account will either be debited or credited.
Thus, it becomes imperative for every Indian to open a Demat Account, alongside a bank account. You can take advantage of the booming capital market to start your journey towards wealth creation by investing in equities, mutual funds, and commodities. Your first step should be to select a trusted financial partner, which would provide multiple benefits, like an intuitive trading platform along with a personalized portfolio analysis. You must also check whether the financial partner of your choice provides services of depositories, like NSDL and CDSL.