Demat Account - Advantages and Disadvantages

As the trading world has shifted to the online space, it has become more and more accessible to the average investor. No longer is it considered an exclusive club where only experts can thrive. Today, trading is widely available on the internet and is accompanied by a number of useful tools and platforms.

A large part in this shift is played by the process of dematerialisation, which has made it easier than ever for traders to hold and trade in their securities. It is also incredibly simple to open a demat account online with your choice of depository participant. However, like all concepts associated with trading, demat accounts necessitate a closer look at its pros and cons. So, let us discuss the concept in detail and review both the disadvantages and advantages of demat accounts:

What is a Demat Account?

Dematerialisation is the process by which physical securities are converted into the electronic format. Hence, demat accounts are a type of online accounts in which traders can hold their securities in an electronic format.

One of the prime benefits of demat accounts is that in trading, it serves a similar function to the one that is served by a bank account to store your money. Each demat account comes with a specific account number and password to ensure security. Each transaction or transfer or securities made with the demat account also comes with its own transaction password.

Advantages of Demat Accounts

In current times, demat accounts have become an indispensable component of modern trading. This is due to the various advantages of demat accounts as mentioned below:

  • Before demat accounts, securities had to be held by traders in the form of physical certificates. This was a significantly tedious process and involved a lot of paperwork. With demat accounts, securities can be stored in an electronic form, thereby making the process of holding and transacting in them convenient and hassle-free.
  • One of the prime benefits of demat accounts is also the fact that they have greatly reduced the risks associated with holding securities in physical forms. These include forgeries, theft, fake securities and issues with transactions such as bad deliveries or delays.
  • Demat accounts also allow for instant transfer of securities. Hence, as soon as a trader spots a favourable opportunity, a transfer or transaction in securities can be made in no time. This allows you to benefit from even the smallest of fluctuation in the movements of the financial market.
  • Seasoned traders will tell you that one of the greatest advantages of demat accounts is that it has helped get rid of the ‘odd lot’ problem. With demat accounts, if you should choose so, you can buy or sell even a single share.
  • As a trader, not only can you open a demat account online but also update important account information such as a change of address without having to reach out to multiple companies. You can simply inform your depository participant, and the updated information will become automatically available for all the companies that you wish to transact with.
  • Demat accounts are also a great all-in-one account for holding a number of different types of securities. You can use your demat account to hold investments in both equity as well as debt instruments, and also use it to hold mutual funds and gold ETFs.

Disadvantages of Demat Account

While the benefits of demat accounts are largely useful for many, there might also be some features that might be perceived as disadvantages for some. Let us take a closer look at some of these:

  • One of the points raised against demat accounts might be that the account holders are required to pay an annual maintenance charge. This charge applies to the trader even if there is only a single share held in the demat account.
    However, it is important to consider that some depository participants, such as IIFL, can offer traders attractive deals while opening a demat account with them. You can open a demat account online at absolutely no charge and also pay no account maintenance charge for a whole year.
  • As opposed to dealing with physical securities, trading in electronic securities might seem somewhat difficult and even complex to those new to the world of online trading. However, this disadvantage can also easily serve as an advantage of demat accounts. While demat accounts require a little initial effort in tech-savviness, they are user friendly and incredibly accessible. Over time, you can find that you are able to trade from anywhere and at any time, entirely at your own convenience.

Conclusion

While demat accounts might seem to present a challenge to certain traders, for the most part, its pros outweigh its cons. If you too would like to make the most of this essential trading tool, consider opening a demat account online with IIFL. With IIFL, investors and traders can avail an all-in-one account through which you can trade in multiple securities online from anywhere.

Open Demat Account at IIFL