Demat Account is an account that is used to hold shares and securities in electronic format. The full form of Demat account is a dematerialised account. The purpose of opening a Demat account is to hold shares that have been bought or dematerialised (converted from physical to electronic shares), thus making share trading easy for the users during online trading.
In India, Free Demat account service is provided by depositories such as NSDL and CDSL through intermediaries / Depository Participant / Stock Broker such as Angel Broking. The charges of Demat account vary as per the volume held in the account, type subscribed, and the terms and conditions laid by the depository and the stock broker.
What is Demat account?
Demat Account or dematerialised account provides facility of holding shares and securities in electronic format. During online trading, shares are bought and held in a Demat account, thus facilitating easy trade for the users. A Demat Account holds all the investments an individual makes in shares, government securities, exchange-traded funds, bonds and mutual funds in one place.
What is dematerialisation?
Dematerialisation is the process of converting the physical share certificates into electronic form, which is a lot easier to maintain and is accessible from anywhere throughout the world. An investor who wants to trade online needs to open a Demat with a Depository Participant (DP). The purpose of dematerialisation is to eliminate the need for the investor to hold physical share certificates and facilitating a seamless tracking and monitoring of holdings.
Demat accounts were introduced in India in the year 1996, prior to which shares and securities were physically issued and traded. The importance of opening a free Demat account is such that it allows the investors to hold their securities electronically in their Demat accounts. This makes the entire procedure of investing, holding, monitoring, and trading, faster, convenient, and cost-efficient.
Benefits of a Demat account
These are some of the advantages of a Demat account:
Lower risks:
Physical securities are risky due to thefts, losses, or damages. In addition, bad deliveries or fake securities pose further risks. These risks are completely eliminated with the opening of a Demat account, which provides holders with the option of holding all their investments in electronic form..
Easy holding:
Maintaining physical certificates is a tedious job. Moreover, keeping track of their performance is an added responsibility. Demat account holders can make it more convenient to hold and track all their investments through a single account.
Odd lots:
With physical certificates, buying and selling were possible only in the specified quantities. The convenience of dealing with odd lots or single security was also not available. Demat accounts eliminate this issue.
Reduced costs:
Physical certificates involved several additional costs, such as stamp duty, handling charges, and other such expenses. These extra expenses are completely eliminated with Demat accounts.
Reduced time:
Due to the elimination of paperwork, the time required in completing a transaction gets reduced. The reduced time requirement enables the account holder to make more purchases and sales of security holdings in a shorter time and with greater efficiency.
Faster dematerialisation & rematerialisation of securities:
Demat account holders can provide instructions to their depository participant (DP) to convert physical certificates into electronic form. Alternatively, electronic securities can also be reconverted to physical form, if required.
Pledging facility to avail loan:
Several lenders provide loans against securities that are held in the Demat account of the borrowers. These holdings are used as collateral to avail loans by the account holders.
Freezing Demat accounts:
Demat account holders can freeze their accounts for a certain period, if required. This option can be beneficial if one wants to prevent unexpected debit or credit into one’s Demat account. The freezing option is also available for a specific quantity of securities held in the account.
Multiple accessing options:
Demat accounts are operated electronically, which means these can be accessed using multiple modes. These accounts can be accessed through the Internet using a computer, smartphone, or other smart devices.
SPEED E-Facility:
The National Securities Depository Limited (NSDL) allows users to send instruction slips electronically instead of physically submitting the slip to the DP. This makes the procedure more convenient and less time-consuming.
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