loader2
Partner With Us

Pros And Cons of Opening Demat Account

Introduction

The shift to an electronic trading system has completely changed the overview of the Indian stock market. With Demat accounts becoming compulsory, several formerly associated issues with holding physical shares, such as loss, stamp duty costs, theft, forgery, misplacement, and other negative attributes, have either been completely eradicated or minimised substantially. So while it is compulsory to have a Demat account to trade in the stock market, let's view some of the pros and cons of Demat account.

  • Quicker settlements

    Previously, with paper share certificates, trade settlements would take approximately 14 days. Today with your Demat account, the settlement cycle has come down to two working days, thus freeing a significant amount of time, effort and energy.

  • Reduced errors

    At the time of manual paperwork, physical and offline settlements were often prone to mistakes. Past instances of erroneous trading caused several investors and traders to lose large sums of money. With the onset of the Demat account, manual errors have been wiped out.

  • Easy liquidity

    With your Demat account, you can easily facilitate asset liquidation. In the past, doing so was formerly a cumbersome and challenging task when assets were held in their physical form. But today, you can buy and sell securities and save them in your Demat account, take a loan against your shares or mutual funds, among others, when you hold your financial assets in their dematerialized format.

Additional Read:How to align your portfolio with your risk appetite and financial goals

  • Odd lots eliminated

    One of the most prominent advantages of holding a Demat account is the elimination of the odd-lot issue. Previously, you could only sell physical shares in lots. Today, if you choose to buy and sell even a single share, you can do so with your Demat account.

  • Single repository for all assets

    Your Demat account not only stores your stock securities but can also hold all other financial securities in their dematerialized form, such as Exchange-Traded Funds (ETFs), Unit-Linked Insurance Policies (ULIPs), bonds, debentures, mutual funds, Sovereign Gold Bonds (SGBs) and more. Having all assets under one roof can allow you to monitor and track your investments quickly. Besides, it is also helpful when filing your income tax as you can view all your assets in one place.

Additional Read: Why you need economic moat in your portfolio

While the Demat account has transformed the way investors and traders transact in securities, it does have a a couple of pitfalls. Let's look at the few disadvantages when discussing the pros and cons of Demat account.

  • High costs

    Some investors view the expenses associated with their Demat account as a disadvantage. However, to maintain your Demat account, there are specific fees that can help manage its smooth operations. These costs include transaction expenses, custodian costs, annual maintenance charges and account opening fees.

  • Risk of churning portfolio often

    Since you can easily access your Demat account online and on any Internet device, you may be tempted to trade frequently. The ease with which your Demat account offers to trade from any place, may result in continuous buying and selling that could affect your wealth creation goals, especially if you have financial objectives to meet. Besides, you may be lured to indulge in short-term trading rather than focusing on long-term investing.

  • Requires tech skills

    Having a Demat account may not require you to be a tech expert. However, you would need to know how to operate the account, monitor, transact, track among other skills. And for that you would have to know and learn some tech skills to a certain extent.

Conclusion :

While there are a few disadvantages to having a Demat account, they can easily be conquered through research, due diligence and financial awareness. The advantages of holding a Demat account far outweigh those of the few cons.

So, if you are eager to trade in the stock market, it can help to know that having a Demat account is a prerequisite to transacting directly on the stock market. Opening a Demat account with a well-established, full-service stockbroker can give you the necessary tools and information you need to trade safely and securely in the stock market.

Disclaimer : ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose.

Most Popular

f
  • 15 Sep 2021
  • ICICI Securities

5 Most Popular Reasons for Switching Bank

In the beginning, you would hear from them quite often. But of late, you're noticing more and more signs that it's no longer working. We are referring to your relationship with your bank. Click here to read how to recognize the red flags in your banking relationship and why it might be a good time to end the bond.

  • 15 Sep 2021
  • ICICI Securities

How Intraday Trading Works? Detailed Ideas

Intraday trading in India has been gaining momentum of late. It is no longer the option of only trade pundits.

  • 15 Sep 2021
  • ICICI Securities

What is Intraday trading? A Beginner's Guide

With the advancement of technology and increased knowledge about the stock market, trading is no more a domain dominated by stock pundits.

  • 05 Sep 2021
  • ICICI Securities

Is it Good To Invest in Cyclical Stocks?

Akin to how the pedals of a cycle go up and down as it moves forward, the share price of certain stocks goes up and down in accordance with the economic cycles a country goes through. 

  • 05 Sep 2021
  • ICICI Securities

A primer on Fixed Maturity Plans

If you happen to have some surplus funds which you don’t need for a specific period, but you don’t want to take the risk of investing this money in the stock market, you can very well put this money in a Fixed Maturity Plan or FMP. 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Equity Mutual Fund

You must have heard a lot about investing in mutual funds. But before jumping on this trend you need to assess a mutual fund scheme according to your goals, investment horizon, risk profile, liquidity needs and many other factors to find a suitable match. 

  • 05 Sep 2021
  • ICICI Securities

A Beginner’s Guide to Monetary Policy Tools

The Reserve Bank of India has the incredibly crucial responsibility to formulate the monetary policy. The main objective of monetary policy is to control inflation and provide a conducive environment for the country's economic growth. 

  • 05 Sep 2021
  • ICICI Securities

Buying Penny Stocks and its Risks

There is a specific category of stocks whose prices are very low and they seem to yield exponential returns. But do you know that investment in such stocks could be risky? 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Debt Mutual Fund?

Debt mutual funds primarily invest in fixed income securities, which include money market instruments like commercial papers, corporate bonds, treasury bills, government bonds and other instruments.

  • 05 Sep 2021
  • ICICI Securities

Tax Saving Using Section 80D

“Make your life safe and get insurance immediately”. This statement was never more relevant than the times when the pandemic threatens to wipe off the population. 

Open an Account

Sign Up for Free

+91

Please use the mobile no registered with Aadhaar.

OTP sent to +91 1234567890

Didn’t received OTP? Resend

00:30

iciciDirect-money-logo
iciciDirectMoney-App

Get Research Backed Recommendations.

Download The app now

or Scan below QR Code To download app

QRcode