Advantages and Disadvantages of Demat Account

Last Updated: 21 Nov 2024

As the trading world has shifted to the online space, it has become more and more accessible to the average investor accompanied by several 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. However, like all concepts associated with trading, Demat accounts necessitate a closer look at its pros and cons.

What is a Demat Account?

Dematerialisation is the process by which physical securities are converted into electronic format. One of the prime benefits of Demat accounts is 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 made with the Demat account also comes with its transaction password.

Advantages

The various advantages of demat accounts are:

• Securities in Demat accounts can be stored in an electronic form, which makes the process of holding and transacting convenient and hassle-free.
• They have greatly reduced the risks associated with holding securities in physical forms like – forgeries, theft, fake securities.
• Demat accounts also allow instant transfer of securities. Hence, as soon as a trader spots a favourable opportunity, a transfer or transaction in securities can be made quickly.
• 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.
• Demat accounts are also a great all-in-one account for holding many different types of securities like – investments in both equity as well as debt instruments, and also use it to hold mutual funds and gold ETFs.

Disadvantages

With the advantages, there are some disadvantages too, which include:

• Demat 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.
• 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.

Conclusion

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