These days, people often come across terms like demat account while exploring through financial transactions.But what exactly is a demat account, and why is it gaining so much popularity? So, let's explore demat accounts and understand demat meaning, uses of demat accounts, and the number of demat accounts in India.
Meaning of Demat Account
A Demat account, or Dematerialised Account, is like an online wallet for a person's shares and other investments. This special account was introduced in India in 1996 for stock market transactions. According to SEBI rules, which are like the bosses of the stock market, all shares and debentures of big companies must be in this electronic form by March 31, 2019, for any stock market deals. With a Demat account, you can hold not just shares but also other financial things like bonds, ETFs, mutual funds, and more.
Benefits of Demat Account
1. Convenience and Accessibility
The main benefit of a Demat account lies in its convenience. Investors can access their holdings and perform transactions from the comfort of their homes. However, this eliminates the need for physical paperwork and multiple visits to the broker's office.
2. Risk Reduction
Dematerialization significantly reduces the risk associated with physical share certificates. The chances of loss and theft of documents are eliminated, ensuring the safety of an investor's holdings. This added security contributes to a more robust investment environment.
3. Cost Efficiency
Demat accounts streamline the entire trading process, reducing the administrative and transaction costs associated with traditional methods. The elimination of stamp duty on the transfer of securities further enhances cost efficiency for investors.
4. Efficient Settlements
Demat accounts facilitate faster and more efficient settlements. The electronic transfer of securities ensures prompt and accurate transaction settlements, reducing the time taken for the completion of trades.
5. Portfolio Management
Investors can easily manage and monitor their investment portfolio in real-time through Demat accounts. This feature allows for a comprehensive view of holdings, enabling informed decision-making and strategic adjustments to the portfolio.
Features of Demat Account
1. Electronic Storage
The main feature of a Demat account is its ability to store securities electronically. Unlike traditional paper-based certificates, Demat accounts hold shares, bonds, and varied other financial instruments in a digital format, reducing the risk of loss, theft, or damage.
2. Convenient Transaction Processing
Demat accounts facilitate the seamless buying and selling of securities. This means investors can execute trades electronically, eliminating the need for physical paperwork. This enhances the speed and efficiency of transactions, ensuring quick settlement and reduced paperwork hassles.
3. Real-time Access and Monitoring
Investors enjoy real-time access to their holdings and transaction history. This feature enables them to monitor their portfolio's performance, track investments, and make informed decisions promptly. The transparency provided by Demat accounts contributes to a more empowered and proactive investment approach.
4. Automatic Corporate Actions
Demat accounts automate various corporate actions such as dividends, bonus issues, and stock splits. This ensures that investors receive their entitlements without the need for manual intervention. The automated process enhances accuracy and eliminates the risk of missing out on corporate benefits.
5. Loan Against Securities
Demat accounts also offer the advantage of availing loans against securities held in the account. This provides investors with liquidity without the need to liquidate their investments, enabling them to meet short-term financial requirements.
How to Open a Demat Account?
Follow these steps to initiate the online Demat account opening procedure.
1. Choose a Depository Participant (DP)
Start by selecting a reputable Depository Participant, often a financial institution, which will serve as the custodian of your electronic securities. Ensure the DP is registered with the central depository.
2. Visit the DP's Website
Explore the official website of the chosen DP. Locate the 'Open Demat Account' or a similar section on the website. This is where you will initiate the account opening process.
3. Fill Online Application Form
Complete the online application form with accurate personal and financial details. This includes providing your PAN card, Aadhar card, bank details, and proof of address. Ensure all information is entered correctly to expedite the verification process.
4. Submit Necessary Documents
Upload all the scanned copies of the needed documents, like your passport-sized photograph, PAN card, and address proof. This step is crucial for KYC (Know Your Customer) verification, a mandatory procedure for opening a Demat account.
5. e-Signature and Verification
After submitting the application and documents, e-sign the form using the Aadhar-based OTP authentication. This step ensures the authenticity of your application and expedites the verification process.
6. In-Person Verification (IPV)
Some DPs may require an in-person verification, which can be done through a video call or a physical visit to their branch. Follow the instructions provided by the DP to complete this step.
7. Receive Demat Account Details
Once the verification process is complete, you will receive your Demat account details, including the Demat account number and login credentials.
The Bottom Line
Demat accounts have revolutionized the way individuals invest and trade in securities. They offer varied benefits over physical shareholding and make transactions faster and more efficient. With the rise in the number of demat accounts in India, it is evident that more and more investors are realizing the advantages of holding their investments in electronic form. Hence, a Demat account is an essential tool for anyone looking to invest or trade in the stock market.
