Myths & Facts About Demat Account
When you do not have enough information about a specific subject, what do you do? You may choose to ask a friend about the matter, make a decision with limited knowledge or desire to find some information related to it somewhere. These three situations can sometimes be more hazardous than having no information at all, as you could rely on incomplete or incorrect information.
It is crucial to have a Demat account when it comes to investing in the stock market. As the short form for dematerialization, a Demat account holds all your stocks, securities and investments in the electronic format. However, you may fall to several misperceptions, also regarded as myths, that can be expensive mistakes in the long run. Let's address the myths and correct them with the facts.
Myth #1: Only shares can be held in the Demat Account
Fact: Most investors erroneously believe that a Demat Account in India only holds shares. No other investment securities are permitted to be held in this account. On the contrary, your Demat Account is a multipurpose. It can hold mutual funds, ETFs, money market securities, bonds, etc., and more to allow you the benefits of dematerialization.
Myth #2: It is unsafe to hold a Demat Account
Fact: Some people believe that online trading can expose crucial investment information to be hacked. However, trading through your Demat Account is a safe and secure method. That's because SEBI mandates every Demat Account provider to offer safe trading platforms to traders and investors with robust firewalls. Every time you make a transaction, you need to enter secure authentications to complete your login or to trade.
Myth #3: One person can hold only one Demat Account
Fact: That’s not true. In fact, you can open multiple Demat accounts as there is no restriction on the number that an investor can own. If your investment interest lies in a wide range of instruments, having multiple Demat Accounts can help you to track them individually. For instance, you can maintain stocks and shares in one Demat Account and use another to hold your mutual funds and so on.
Additional Read: How many Demat accounts can one have
Myth #4: A Demat Account must never be kept empty
Fact: It is not compulsory to hold some form of financial instrument in your Demat Account. Your Demat Account works like a zero-balance bank account, which means you do not necessarily have to maintain a financial instrument just because you have opened it.
Myth #5: There is no charge associated with a Demat account
Fact: To open and maintain a Demat Account requires fees as specified by the broker. These charges may differ from one broker to another, depending on whom you choose. In most cases, a broker may levy a one-time payment when opening a Demat Account in India. Others may have annual maintenance fees that you need to pay every year. Besides, they may also be transaction fees when selling securities.
These were just some of the many myths surrounding the Demat Account. Understanding the reality behind them can become the key to your success in stock market investing. To become a thriving stock market investor, look to staying abreast of the latest updates in the world of stocks and taking upfront research to get you closer to a wealthier financial future.
1. Is there any risk in Demat Account?
Demat Accounts are entirely safe. India's Securities and Exchange Board has made it mandatory for every Demat Account provider to offer safe trading platforms to traders and investors with robust firewalls. Every time you make a transaction, you need to enter secure authentications to complete your login or trade. Regulatory authorities can catch any activity that may be fraudulent.
2. What are the disadvantages of Demat Account?
Demat Accounts attract an annual maintenance charge that needs to be paid. This can be a deterrent for some. Moreover, you need to be technologically savvy to operate a Demat Account. The other disadvantage of a Demat Account is that your stockbroker will be able to supervise your transactions and keep track of them.
3. Is it good to have Demat Account?
For those who want to actively trade or invest in financial markets, having a Demat Account can be highly beneficial. Not only does it store equities, but you can also store mutual fund units, bonds, ETFs and other financial instruments in a Demat Account. Using a Demat Account, you can trade hassle-free in the financial markets of India.
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.