Features and benefits of a 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 the various features and benefits of a Demat Account:
Features of Demat Account
Like a bank account for shares:
Think of a demat account as like a bank account for shares. When you buy shares, they are credited to your demat account. When you sell them, the shares are debited from your account.
Demat account is not a trading account:
There is often confusion between a demat account and a trading account. You can trade in shares only through a trading account that you need to get from a brokerage firm. A demat account is used to hold your securities in dematerialized form and to obtain a record for corporate actions like dividends, stock split etc.
What is a DP?
All shares are recorded in what is called a Depository, like the National Securities Depository Ltd (NSDL) or Central Depository Services Ltd (CSDL). They appoint agents called Depository Participants (DPs), through whom you can open a Demat Account. DPs can include banks, stockbroking firms and other finance companies.
You have to pay annual maintenance charges for your Demat Account, ranging from Rs. 100 to Rs. 800 PA depending on balances. Plus, there are transaction charges, which is a small percentage of each transaction that you make.
You can open a Three-in-one Account that combines Demat, Savings and Trading Accounts at few broking companies or brokers that are subsidiaries of banks. You can trade through your Trading Account and the payment can be allocated to the trading account instantly from your savings account. Two days after purchasing, the shares will be reflected in your Demat Account.
Most brokers will open a Demat Account for you while opening a Trading Account. You might have to deposit some amount with the brokerage firm so that you can pay for any transactions.
Benefits of Demat Account
More efficient and safe:
Since everything is done automatically and in electronic form, the scope for human error is low in the case of a Demat Account. Since no paper certificates are involved in the entire process, you don’t have to worry about loss or damage.
You can find out the shares and other securities in your portfolio and find out how much they are worth. In some Demat Accounts, you also get SMS alerts whenever a trade is made.
Demat is cost-effective since stamp duty that was imposed on share certificates was eliminated. And intermediaries don’t have to deal with truckloads of paper for share transfers.
Wide range of investments:
With a Demat Account, you can invest in wide array of investments such as debentures, mutual funds, government bonds and exchange-traded funds.
Loans against securities:
If you have a Demat Account and a Savings Account at the same bank, it becomes much easier to get loans against securities if you are in need of funds.
The process of disbursing dividends has become so much easier through Demat Accounts. Companies don’t have to issue thousands of cheques. Recipients don’t have to bother about filling forms and depositing cheques at bank branches. These are credited automatically to the linked bank account.
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.