Top Features & Benefits of Demat Account
If you want to invest in shares and some other securities, you will need a demat account. This is because physical share certificates are no longer issued and all records of share ownership are now in electronic or dematerialised (demat) form. Without a demat account, you won’t be able to buy or sell shares.
Let’s look at the features and benefits of a demat account:
Advantages of demat account opening
Here are some key advantages of opening a demat account:
1. Lower risks
While dealing with physical securities, risks are high 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.
2. Easy holding
A demat account can give quick and easy access to your investments and statements through net banking. Also, these details can be available to you anywhere—computer, smartphone or any other smart device.
3. No issue with odd lots
If trading occurs in the form of exchanging paper materials, it has to be quantified. To make large-scale profits, the limit on the number of shares traded should be removed. One of the benefits of holding a demat account is that it offers convenience when dealing with odd lots and single security deposits.
4. Reduced costs
When you deal with physical securities, it involves additional costs, such as handling expenses and stamp duty. These charges are difficult to determine beforehand. All these extra costs are eliminated if you switch to a demat account. You will only have to pay brokerage charges, which will be informed in advance.
5. Reduced time
The process of buying and selling shares using a demat account is instant. If physical certificates were involved, it would take a lot of time. Transactions which are made using a demat account are seamless and inexpensive. This is mainly because securities are stored in a dematerialised form.
6. Loan facility
You can gain access to a variety of bank loans through the securities maintained in your demat account by pledging your securities as collateral.
Additional Read: Checklist of Demat Account Charges and Fees
7. Eliminates Loss
In case of physical shares, chances of misplacing the securities increase, whereas these are safe in a demat account.
8. Paper or ink damage
Over time, paper decays and ink may leave dabs. With a demat account, you can have a digital record of your securities.
9. No TDS on demat securities
The Central Board of Direct Taxes (CBDT) has granted dispensation from tax deduction at source (TDS), when you make payments made by demat accounts. Moreover, no TDS will be deducted on the interest received on your bonds and securities. When you open a Demat Account online, you have to make sure that your securities are saved in the demat mode and should be listed on NSE and BSE.
10. Easy access and monitoring
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.
11. Corporate gains
Demat accounts have replaced the time-consuming process with quick and easy methods to receive dividends, interest or refunds. It is all auto-credited in the account. It is also extremely convenient when it comes to updating investors’ accounts with stock splits, bonus issues, rights, public issues, etc. through electronic clearing service (ECS).
Additional Read: Things to check before opening a Demat account
12. Easy share transfer
Transfer of shares on buying or selling have also become much easier. Earlier physical transfer of shares would take about a month. With this process simplified, costs have also come down. There is no stamp duty on transfer of securities held in the electronic form.
13. 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.
14. Freezing demat accounts
Demat account holders can freeze their accounts for a certain period, if needed. 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.
Additional Read: What is Demat Account, its Meaning, Type and Process?
1. What are the advantages and disadvantages of a demat account?
A demat account can have certain advantages and disadvantages. Let’s discuss some of these:
- It offers a safe place to hold your shares and other securities
- It can be single-handedly used to hold all securities, such as debentures, stocks, exchange-traded funds, etc. It can also be used to hold physical assets, such as gold in a dematerialised form
- It improves liquidity with quick selling and redemption options
- Owing to digitalisation, there is a reduced chance of errors
- Depending on the broker, the costs of opening a demat account may be high. Some demat accounts may have account maintenance charges, transaction charges, and other similar charges
- Investors may face issues if they get stuck with a dishonest broker. However, this can be avoided by choosing renowned and trustworthy brokers
- Investors who are new to technology may find it hard to manage their accounts at first. However, this can be overcome with prior research and reaching out for your broker’s for help
2. Is it good to open demat account?
Opening a demat account is mandatory if you want to trade in securities. Apart from that, it has numerous advantages, such as easy handling and trading of securities, reduced transaction time, reduced cost of trading, etc.
3. Is the demat account profitable?
A demat account does not add any additional profit to your investments. It merely provides you with a place to hold your investments.
4. Can I buy shares without a demat account?
No, you cannot buy shares without a demat account. As per the Securities and Exchange Board of India (SEBI) guidelines, companies can issue shares only in an electronic format and not in physical form. Hence, you’re required to store your shares in the dematerialised form only which makes a demat account mandatory for buying shares.
5. What happens if I don’t use my demat account?
A demat account is necessary for buying and selling shares in the share markets. However, if you don’t use your demat account for a long time, it may become dormant or inactive. This may also happen when you don’t pay the annual maintenance charges for your demat account. In such a case, you might have to pay reactivation fees along with the dues to reactivate your demat account.
6. Can I lose money in demat account?
Demat accounts attract certain charges, such as account opening charges and annual maintenance fees. These may be deducted from your account. Apart from that, you may incur losses on the trades that you do.
Disclaimer:- The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.