A demat account acts as a safe storage facility for all your stocks and securities. Unlike the traditional method of holding physical share certificates, which posed risks such as theft, demat accounts store securities electronically, mitigating such concerns.
In India, two primary depositories facilitate the opening of demat accounts: the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). These repositories play a crucial role in maintaining and managing the electronic records of securities held in demat accounts.
When you want to trade in stocks or hold them on delivery basis, you need to have a demat account for online stock trading. But why should you open a demat account for business? Let’s look at its main advantages.
No Document Loss: Before the advent of demat accounts, shares were vulnerable to tampering, theft, and counterfeiting due to their physical paper form. The process of transferring shares involved cumbersome paperwork, prone to errors and delays. Demat accounts provide a secure electronic storage solution, eliminating these risks and simplifying transfer processes.
Cost effective: Traditional physical business incurred additional costs such as handling fees and stamp duties, often unpredictable and burdensome. Demat accounts streamline expenses, with transparent brokerage charges being the main cost. Opting for discount brokers further improves cost efficiency, making demat accounts an attractive option for traders looking for savings.
Time Saving: Demat accounts enable quick buying and selling of shares, thereby improving share liquidity. Transfer processes were significantly streamlined, resulting in considerable time savings for investors.
Easy Tracking: Demat accounts eliminate the need for manual maintenance and tracking of physical documents. All investment records are securely stored on a digital server, simplifying tracking and management for investors.
Corporate Earnings: Demat accounts automatically update corporate actions like bonus issues, share splits and entitlements. This ensures that investors receive repayments, interest or dividends on time, improving the overall convenience of online trading.
Miscellaneous Investment Storage: Apart from stocks, demat accounts securely hold a wide range of investments including bonds, mutual funds, ETFs and government securities. This comprehensive storage solution offers investors greater diversification opportunities and portfolio flexibility. You can also apply for IPOs and FPOs through your demat account.
Ease of Access: Demat account holders enjoy the convenience of accessing their accounts anytime and anywhere using smartphones or laptops. This accessibility improves the overall flexibility in managing investments and monitoring the portfolio.
Frequently Asked Questions
What is the minimum age to open a demat account?
Contrary to popular belief, you do not need to be 18 to open a demat account. There is no minimum age to invest in the stock market, so adults as well as minors can have a demat account. However, if you are below 18 years, your parent or guardian can open a demat account on your behalf. Also, you will not worry about your demat account till you are 18 if your account was opened before that age. Your parents or guardian will manage the account. After you turn 18, the depository will send an advice to get documents to transfer your demat account to you officially.
What is a deposit?
A depository can be compared to a bank. A depository holds securities (such as stocks, bonds, debentures, government securities, units, etc.) of investors in electronic form. In addition to holding securities, a depository also provides services related to transactions in securities.
Can I buy government securities directly in demat form?
Indeed, the market for government securities such as bonds and treasury bills (T-Bills) has become easily accessible to retail investors. The Reserve Bank of India (RBI) reserves a portion of new issues specifically for retail investors. You can invest in government securities (G-Sec) either by participating in auctions of new securities or by purchasing already issued securities in the secondary market. To engage in either method, you need to approach any authorized bank, prime dealer or stockbroker by providing your demat account details (DP ID and Customer ID).
How will I know my DP has updated my account after each transaction?
You will receive an account statement showing the transactions and balances periodically to help you monitor the events in your account. You can also monitor the same using facilities like SMS alerts, IDeAS and Mobile Apps.
What will happen if my DP goes bankrupt or ceases operations?
In the rare event of your DP going bankrupt or shutting down its operations, the interests of the demat account holders are fully protected. In such a situation, you would have the option to transfer your balances to any other DP of your choice or rematerialize the same.
Unlock a world of Perks! From insightful newsletters to real-time stock tracking, breaking news and a personalized news feed – it’s all here, just a click away! Login Now!
Catch all Business News, Market News, Breaking News and Latest News Updates on Live Mint. Check out all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
More or less
Published: 04 Mar 2024, 18:55 IST