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Everything You Need to Know About Demat Account

A Demat account opens the gates for an individual to grow his wealth in the stock market. Any individual looking to make short-term or long-term investments in the share market must open a demat account first. Therefore, it is crucial to equip oneself with complete knowledge about this account. 

What is a Demat Account

A demat account is an electronic account where an investor or trader can store all his share market holdings digitally. When a person trades online in the stock market, the stocks he buys get stored in this easy to use account. It facilitates trades for the investor and makes governance convenient for SEBI (Securities and Exchange Board of India).

This digital account stores the investor’s holdings in a paperless form, eliminating the risk of theft, forgery, duplication, and damage to the share certificates. Leading stock brokers offer a free demat account to investors and traders. 

What is Dematerialisation

Traditionally, companies would issue share certificates in a physical form. With time, investors and traders were equipped with an electronic version of their shareholdings. Converting the physical share certificates into their digital form is known as dematerialisation. 

Now, an individual can trade or invest in the share market from anywhere using the online accounts provided by brokerage houses. It has made trading and investing quick, straightforward, and cost-efficient for people. One can open demat account online and save himself from the hassle of visiting the branch of the brokerage house. 

Why is a Demat Account Important

  • This account empowers an investor with a digital and secure medium to hold his share certificates. 
  • It allows for an instant transfer of securities, which was not possible with physical share certificates. 
  • In special events like bonuses, mergers, etc., shares get automatically transferred to the recipient’s account. One can log in to the account and view all this information.
  • It eliminates the need to physically visit the stock exchanges to book a trade. Trade on the go using this account. 
  • The transaction cost reduces for traders as there is no stamp duty involved. 

Working of a Demat Account

To use a demat account to its full capability, one must know it’s working. This account is linked to a trading and bank account of the individual. You can start by placing an order through your trading account. Once the brokerage house places the order on your behalf, the stock exchange processes the order. When another individual with a corresponding sell/buy call is found, the exchange executes the trade. If one buys shares, they reflect in the demat account. If it is a sell call, the funds reflect in the bank account. 

Types of Demat Accounts

One must choose the right account as per requirements. Here are the various types of accounts one can choose from: 

  • Regular demat account: Indian resident investors who want to trade in shares in India need this straightforward account. A trader who wants to trade only in Futures and Options does not need this account as these contracts do not involve storage. 
  • Basic services demat account: These recent accounts by SEBI do not charge the account holder maintenance charges (for holdings less than Rs.50,000). This account is especially beneficial for new investors. 
  • Repatriable demat account: These accounts are specially curated for Non-resident Indians (NRIs) to transfer their earnings from the Indian share market to their resident country.
  • Non-repatriable demat account: These accounts for NRIs do not provide for a fund transfer from India to the resident country. 

A Demat account is a basic requirement for anyone who wants to use the share market as a primary or secondary income source. 

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