The advantages of having a Demat account with a bank account

Last Updated: 16 Oct 2024

Why Should Every Indian Have a Demat Account along with a Bank Account?

People have access to bank accounts in some form (such as savings bank accounts, or current bank accounts). However, there is a 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 June 2021 was 62.2 million.

One prime benefit of a Demat account is that it facilitates trading. Many people wish to invest in shares and securities, but 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.

Opening a Demat account linked to your bank account is your first step to becoming investment-ready. One of its benefits includes ease of investing in the stock market. Moreover, linking both accounts means less documentation.

Having investments electronically stored in a Demat account spares you the risk of losing information. When linked with your savings account, Demat transactions become easier to track. This leads to the list of advantages of having a Demat account with a bank account.

Understanding Demat Account

Before you start trading, you have to open a Demat account with a Depository Participant (DP), which can be: Banks, Brokerage Firms, and 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 electronic format.

In 1996, the Securities Exchange Board of India (SEBI) passed a regulation that having a Demat Account is compulsory to trade in the stock market like the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE).

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.

A top advantage of having a Demat account with a bank account is quicker fund transfers from savings funds to your investment portfolio.

However, beware of attracting additional charges when your Demat accounts become dormant. Ensure to link your PAN and Aadhar cards with the Demat account for smooth operations.

The good news is that you can open multiple Demat accounts, with separate depositaries. You need to separate charges to pay for every Demat account that you hold.

What securities can be kept in your online Demat account?

The biggest advantage of having a Demat account with a bank account or the pros of having a Demat account with a bank account is that you can use it for investment across diverse instruments.

Your Online Demat Account can hold a wide variety of securities. These are:

1. Shares or stocks
2. Exchange-traded funds or ETFs
3. Equity shares
4. Initial Public Offering (IPO)
5. Mutual Funds
6. Government Bonds
7. Non-convertible Debentures (NCDs)

Advantages of a Demat account

There are manifold advantages of a Demat Account. Some of them include these benefits of a Demat account along with a bank account:

1. Easy Accessibility: You can easily access your online Demat Account through your electronic devices.
2. Easy rematerialization/dematerialization 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).
3. Safety: Opening a Demat account can prove to be the safe choice as they are not subjected to theft, loss or any potential damage.
4. Helps facilitate the opening of your trading account: 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.
5. Ease of carrying out transactions: At a click of the mouse, your transactions can be processed and once you place an order, the shares will be reflected in your Demat Account within two days.
6. Saving stamp duty: No stamp duty is required on the transfer of securities that are in electronic format.
7. Easy money on the liquidation of shares: Through your Demat Account, you can quickly receive money after selling shares.
8. Corporate benefits: Stock dividends, interest and refunds are auto-credited in your online Demat Account.

Other pros of having a Demat account with a bank account or benefits of having a Demat account with a bank account include quick disbursement of corporate bonuses.

Additionally, there is a negligible risk of address and bank account mismatch. This saves unnecessary hassles when it comes to receiving any refunds, credits or payments too.

A prime benefit among the top advantages of having a Demat account with a bank account is the convenience of adding a nominee. All you need is to add nominee details and a sanction.

Stay assured about the quick transmission of ownership, in the event of account holder death for Demat accounts. Additionally, Demat securities do not attract TDS. Another not-much-realized pick among the pros of having a Demat account with a bank account is that the customer is updated with all Demat transactions regularly via a registered email address or phone number.

Understanding the link between your Demat Account, Trading Account and Bank Account

Once you 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.

A Demat account is incomplete without being linked to a bank and a trading account for stock trading.

Demat Accounts and Bank Accounts

You can link a bank account to a Demat account easily online. Since a Demat account is mandatory to trade in the securities niche, you need to submit all relevant documents for verification.

If you are opening a Demat account with a broking firm, the process for linking the same with a bank account could be specific to the brokerage rules.

Holding a Demat account and savings account at the same bank does not lead to discounts on any charges

Conclusion

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. Your first step should be to select a trusted financial partner, which would provide multiple benefits, like an intuitive trading platform along with personalized portfolio analysis and check if they provide services of depositories, like NSDL and CDSL.

Begin your investment game by opening a Demat account now. With the many benefits of having a Demat account with a bank account, investing safely is only a click away!

Frequently Asked Questions

Is it necessary to link a bank account with a Demat account?

Yes. A Demat account stands linked to a trading account. The latter is linked with your bank account. For trading in shares, you need to first put money from this bank account into a Demat account.

Which bank account is best for a Demat account?

While all leading banks offer Demat account services across India, you can choose a bank account based on your needs, location and convenience.