Demat accounts have revolutionised stock market investing, helping millions of investors move away from physical security certificates to digital trading. Check out all that you need to know about demat accounts – what is it, benefits, and how to get started.
If you are thinking about investing in the stock market, then you probably would have heard the term, “demat account,” either from your friends who are investors in the share market or would have come across it in your preliminary Google searches.
Wondering what is it, and why do you need it? Get all your demat queries answered here in this article.
Demat Account – A Quick Introduction
A demat account is similar to your regular bank account. However, the major difference is that while your savings bank account holds money, your demat account holds your shares, bonds, and other securities.
Why do you need a Demat Account?
If you are looking to buy or sell stocks/shares in the Indian stock market online, it’s mandatory that you have a demat account.
Understanding Depositories and Depository Participants (DPs)
Before you delve further into demat accounts, it’s essential that you understand two related key terms.
Depositories – As the name implies, a depository is an organisation that holds the shares you own electronically. A few years ago, shares on the stock market were hard copies. But, with the advent of the digital age, today depositories hold your securities digitally.
The depository facilitates all your transactions – buying, selling and trading shares on the stock market. SEBI (Stock Exchange Bureau of India) has two registered depositories:
- CDSL (Central Depository Services Limited)
- NSDL (National Securities Depository Limited)
All your transactions with the depository are made via a DP, the Depository Participant. Consider the DP, as the middleman, who acts between the investor and the depository. The account that you own and operate at the DP is the Demat Account.
The Benefits of a Demat Account
With a demat account, you don’t have to handle your shares, bonds, and other securities physically. All your stocks are held securely in your demat account. Here are the top benefits of using a demat account for stock market investing:
- Your stocks, bonds, and other securities are held securely. There’s no chance for counterfeit stocks, theft, and other malpractices.
- The transaction cost you incur while using a demat account is marginally lower than transacting with physical stocks. This is because, with a demat account, you don’t have to deal with stamp duty.
- Lesser paperwork for transactions, thereby the time taken for a transaction with a demat account is considerably fast compared to physical stock certificates.
- Common risks and scams associated with physical stock certificates like thefts, misplacement, mutilation, fake certificates, and other risks are eliminated.
- With a demat account, selling and buying shares becomes convenient and hassle-free. One of the biggest drawbacks of physical stock certificates was that you could buy and sell only at specified quantities and odd lots weren’t permitted. The demat account overcomes this issue, and you can sell any number of shares, even just a single share.
- Above all, a demat account makes it easy to invest in the stock market online. It’s fast, convenient and hassle-free, thereby making it a must for newbie investors.
Now, that you know what a demat account and its benefits are, here’s a quick guide on how to open one.
The 5-Step Guide to Opening a Demat Account
Opening a demat account is easy and super quick. You can open a demat account at any preferred DP, registered with the SEBI.
Step 1: Choose your preferred Depository Participant
Step 2: Download or fill the Demat opening application online
Step 3: Submit the e-copies of all the required KYC (Know Your Customer) documents
Step 4: The DP staff will then get in touch with you to complete the verification
Step 5: You will be provided with your demat account number, login ID and other details
It takes around 7 to 14 days for your demat account to be activated. Once your demat account is operational, you can start buying and selling securities online and start building your investment portfolio.
