The introduction of the demat account in 1996 has sparked a revolution in the Indian share market and since then, the securities purchased by investors go directly into their Demat accounts.
What is a Demat account?
A Demat account not only stores securities in it, but it can also have bonds, ETfs, and other market instruments. The Dematerialisation process was mediated by SEBI for all the shares and was to be done by March 31, 2019.
Now you may ask what is dematerialization?
It is the process of transforming physical securities into an electronic format stored in a Demat account.
A demat account has now become a basic necessity to buy and sell shares in the stock market.
And for which investors can have any of the three types of Demat account
Regular Demat Account: This can be opened by any Indian citizen.
Repatriable Demat Account: This can be opened by a Non Resident Indian, with which they can transfer funds from overseas, provided that they have a NRE bank account linked to the demat account.
Non-Repatriable Demat Account: This again can be opened by a Non Resident Indian but here you cannot transfer funds and to operate this account you need to have a Non Resident Ordinary Account.
Uses of a DEMAT Account
Storing Securities Electronically- A Demat account acts as a secure electronic repository for holding a variety of securities. It can store all types of financial instruments, such as stocks, bonds, mutual funds, and others.
Easy and Quick Transactions- Investors can conveniently buy and sell shares online through their Demat accounts. Trading securities via Demat accounts is much faster than using traditional methods that involve physical share certificates.
Receiving Stocks Dividend and Benefits- A Demat account simplifies the process of receiving dividends, interest payments, refunds, and other investment-related benefits, which are automatically credited to the investor's account.
Portfolio Management- Demat accounts allow investors to easily monitor and manage their investment portfolios. They can track the performance of their holdings, view transaction history, and analyze market trends in real-time.
Benefits of Demat Account
- Cost Efficiency
Demat accounts typically have lower transaction fees compared to physical trading. They eliminate the need for paper-based transactions and handling charges.
- Ease of Use
Investors can access their portfolios online, allowing them to monitor holdings, track transactions, and execute trades from home or office. This removes the need for physical paperwork and visits to intermediaries' offices.
- Enhanced Liquidity and Speed
A major benefit of Demat accounts is the rapid transfer of securities. Investors can quickly buy and sell shares online, enabling active traders to seize market opportunities and increasing the liquidity of these securities by making it easier to convert them to cash.
- Security and Protection
Securities are stored digitally, eliminating the risks of loss, theft, or damage that come with physical share certificates.
- Nomination Feature
Demat accounts also offer a nomination feature, allowing investors to designate beneficiaries for their accounts, ensuring smooth transfer of assets in the event of the account holder’s death.
- Convenient Access
Demat accounts provide easy access to investment portfolios anytime and anywhere. Through online platforms and mobile apps provided by brokerage firms or depository participants, investors can view their holdings, track performance, and execute transactions with ease.
- Loan Facility
Investors can obtain loans against securities held in their Demat accounts by using their eligible securities as collateral. This allows them to access funds without selling their investments.
- Simplified Investment Storage
Besides shares, investors can hold bonds, mutual funds, ETFs, government securities, and other financial instruments in their Demat accounts. This consolidated storage simplifies portfolio management.
Requirements for a Demat Account
1.Eligibility Criteria
There are no age restrictions for opening a Demat account. Parents or legal guardians can open a Demat account on behalf of a minor.
The eligibility criteria in India include:
- Resident individuals
- Non-resident individuals
- Corporate entities
- Partnership firms
- Banks
- Registered or unregistered societies
- Registered or unregistered trusts
- Mutual funds
2. Documents Required
PAN
Aadhar
Aadhar Proof
Passport size photo
ID Proof
You may also check our recently published blog, to find out more about how to reactivate your dormant Demat account online.
Investing is Simple
With this article, we can assure you- you are good to buy your very first share from the market but keep in mind the profit or loss you make will depend on the research you have done, and other market forces may also be taken into consideration here. Be cautious while purchasing any stock and do not blindly trust anyone giving tips.
Happy Investing!
Also Read: Dematerialisation and Rematerialisation: Understanding Their Differences in Shareholding
