It is, by now, common knowledge that one needs a demat account to invest in markets. However, while the term “Demat” has become a part of the financial lexicon, it is worth thinking what does it mean.
Demat is simply short for “Dematerialized” and hence, a demat account stands for a dematerialized account. Anything that is stored or deposited electronically is dematerialized and so, a demat account is an electronic account for your investments. It is in a sense a virtual portfolio of shares and other securities. Since it’s fully online, it has replaced the physical form and system of investments completely.
Since a demat account is a wholly Indian creation, it was launched first in the year 1996 for all transactions made on the National Stock Exchange. Its introduction is considered as the definitive moment of advancement in investments and financial markets.
Since 2019, as per SEBI regulations, all debentures and shares of listed companies must be dematerialized to facilitate their transactions on the exchanges. As a result, physical share certificates have become a forgotten relic of the past.
There are 3 main types of Demat Accounts:
1. Regular Demat Account: This account is only for the residents of India who wish to trade in online equity investments.
2. Repatriable Demat Account: This account is for Non-Resident Indians to trade in the global market. The NRI needs to open an NRE bank account to facilitate the transfer of funds abroad.
3. Non-Repatriable Demat Account: This account is for an NRI to trade in online securities without transferring funds abroad. This demat account needs an NRO bank account linked to it.
The main purpose of a demat account was to dematerialize all physical investments into a digital form. This was done in view of the still-nascent progress of online trading in the country. But this remains to be its most significant advantage. All hassles and difficulties of physical certificates and delivery slips have been eliminated by the introduction of a demat account.
Here are some other unique advantages of a demat account:
1. Instant access to all securities and investments
2. Seamless transactions and transfers of shares
3. Facility for transactions on the GO
4. Safety from the loss or theft of physical investments
Apart from these, a demat account also makes it easy for an investor to unlock and access investments for other purposes, such as to obtain funds for an urgent requirement. The Loan Against Securities facility enables investors to pledge their dematerialized shares and avail of finance for their immediate requirements. For any other purpose or contingency, dematerialized securities can be easily redeemed or withdrawn without any hassles.
The absolute essentials that an investor should have for a demat account are as follows:
1. PAN – Personal Account Number
2. Aadhaar
3. Bank Account
All these three need to be mapped and synced with a demat account at the time of the account opening itself. In addition to them, an investor might be required to submit his address proof, contact details, such as email ID and mobile number, and even photographs for identification. You can also check up, in detail, all documents that are needed for opening a demat account.
Many depository participants, such as brokers, have already initiated a seamless and fully online account opening process wherein the process of submitting documents and verification of identity too can be done virtually. This has again negated the need for physical or face-to-face meetings and paperwork to complete the process of account opening.
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