Why is Demat Account Important?

If you want to participate in an Initial Public Offering (IPO), purchase shares, and start trading in stock markets, one of the first requirements is to have an online Demat Account. A Demat or dematerialised account holds your shares and securities in the electronic format. Similar to a bank account, your Demat Account holds the record of the sales and purchases of your shares.

Why an electronic format? Can’t I hold the physical shares?

  • Any investment made in equity shares in the physical form is cumbersome and entails a lot of paperwork. You might even run the risk of receiving fake shares.
  • To prevent any discrepancy, and to streamline the process of online trading, the shares are converted into the electronic format.
  • This improves the accessibility of your shares and securities, which, in turn, means they can easily be traded. After you open a Demat account, you can keep your shares safely.

What if I just want to hold the shares, and not trade in stock markets?

  • Suppose you participate in an IPO, and purchase certain shares, you still have to open a Demat Account. If someone wants to give/gift you shares, then again you require an online Demat Account.
  • Here, you must understand that a Demat Account just holds your shares or securities. To begin trading in stock markets, you require a trading account and a bank account. For instance, after you open a Demat Account, and want to trade, you can make the necessary purchase orders through your trading account. After the order is processed in the stock market, the shares will be transferred in your Demat Account, while the necessary charges, or the cost of purchase, will be deducted from your bank account.
  • If you just want to hold the shares, then you do not require any other accounts other than a Demat Account.

What kind of investments can be held in a Demat Account?

You can hold a wide variety of investments in your Demat Account. These are:

  • Equity shares
  • Exchange traded funds
  • Mutual Funds
  • Bonds
  • Government securities

Do I always need to keep a minimum balance of shares or securities in my Demat account?

You can open a Demat Account without actually possessing any shares. Just like some savings bank accounts, you are allowed to maintain a zero balance in your Demat Account.

Advantages of Demat Account:

Here is a look at the advantages of a Demat Account:

Transfer your shares:

You can easily use your Demat Account for transferring your shares. All you require is a Delivery Instruction Slip (DIS), where you have to provide the requisite details.

Loan facility:

Your Demat Account can also get you a variety of loans from banks. All you need is to pledge the securities in your Demat Account as collateral.

Dematerialisation and rematerialisation :

If you have an online Demat Account,then you can convert your shares from the physical to electronic form (dematerialisation), or from the electronic form to physical form (rematerialisation), depending upon exigencies of the situation. All you need is to provide your Depository Participant (DP) with the necessary instruction.

Easy accessibility:

Because your account is digital, it can be easily accessed from a slew of devices like computer, laptop, tablet or smartphone. You can use any of the devices to conduct any operations like investing, trading and monitoring.

Corporate benefits:

A Demat Account helps you get corporate benefits. If you hold securities, and the company provides dividends , interests or refunds, these will automatically accrue in your account.

How to open a Demat account?

  • Select a Depository Participant of your choice.
  • Fill the account opening form, and provide the requisite documents, including PAN card.
  • You will receive a copy of the rules and regulations along with the terms of agreement, and the charges you need to pay.
  • Now the process of in-person verification will begin, where an agent of the DP will verify your details.
  • Post-verification, your application will be processed, and you will receive an account or client ID number.
  • Now you can start using your online Demat Account.

Conclusion

Thus, having a Demat Account is of paramount importance if you want to hold shares or securities, and start trading in stock markets. All you need to do is open an online Demat Account with a trusted partner who can provide a smooth platform to open your account, besides providing cutting-edge data and analysis to help you stay ahead in the journey of stock trading. Opting for a 2-in-1 Demat-cum-Trading account is ideal to facilitate the easy buying and selling of shares.

Open Demat Account at IIFL