A Demat Account is an electronic account that holds your shares and securities in digital form, replacing the traditional physical certificates. It enables seamless, safe, and paperless trading and investing in the stock market by converting your stocks and equity investments into a dematerialized format. Demat account converts your stocks and other equity-related investments into electronic format. Just like a bank account is for your money, a demat account is for your investment portfolio. The demat account makes investing in shares a safe and streamlined experience. As the share certificates get converted to electronic format, it increases their accessibility and ease of handling.
As per the Securities and Exchange Board of India, opening a Demat account is necessary if you want to buy, store and sell shares. Demat accounts can be opened without possessing any shares and maintaining a zero balance. For this, you need a depository and a participant registered with the depository. Once an investor decides to trade in online equity shares and other investment options like mutual funds, bonds, government securities, and exchange-traded funds, he can approach a Depository Participant registered with either the NSDL or the CDSL.
Once the documentation process is complete, the DP opens a Demat account for the investor, either with the NSDL or the CDSL. The investor is provided with a Unique ID, your Demat account number. The total characters in every demat account number in India are 16; however, the format of the account number depends upon which central depository the account is opened with.
1. In NSDL, the first two characters are alphabets determining the country the investor belongs to (e.g., IN12345678987654 for India).
2. For CDSL, every character is numerical (e.g., 1234567898765432).
Every account number is a combination of the DP ID investor's client ID.
1. The first 8 digits are the DP ID, which is the unique identification number provided to the Depository Participant by the Central Depository.
2. The following 8 digits are the investor's client ID, that is unique to every investor and their specific portfolio.
For example, in NSDL account number IN12345639393939, IN123456 is the DP ID, and the client ID is 39393939.
If investors wish to start buying securities, they may have to provide a cheque. The DP, now acting as the investment broker, will purchase the electronic or dematerialized shares for you and maintain them in your Demat account. The investor can view them in the Statement of Holdings. If the investor chooses an online platform, the holdings can be viewed online. Generally, the shares are credited by the DP on a T 2 basis (Trading Day 2 days).
If the investor wishes to sell the shares, a delivery note with detailed information regarding the stock to be sold has to be given to the Depository Participant (DP). The DP will sell the respective shares, and the money will be credited to the investor.
1. If the investor is using an online platform, the debit of shares and credit of money are immediately visible in the account.
2. When listed companies give out dividends or bonuses, they get a shareholder list from the NSDL or the CDSL and credit investor accounts.
Before 1996, investing in shares was a lengthy process with cumbersome paperwork. Managing paper-based share certificates was costly and inconvenient. Dematerialization of shares and regulation of online platforms by SEBI have made trading easy and accessible to every individual wishing to invest in diverse instruments.
A Demat Account is a must for anyone who wishes to invest in the Indian stock market. It makes trading easy by turning physical investments into a safe digital form, enabling investors to trade smoothly and view their portfolios online. Getting a Demat Account with a well-known broker such as Mirae Asset Sharekhan grants access to a variety of products and professional support, simplifying entry and growth in the investment universe.What is Demat Account and How does it Work?
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