An online portfolio called a demat account, often referred to as a dematerialized account, is a sort of storage space for a customer’s shares and other securities. Actual share certificates no longer need to be kept or traded. Demat trading was initially made available for NSE transactions in India in 1996. Beginning on March 31, 2019, all shares and debentures of listed firms must be dematerialized in compliance with SEBI requirements in order to execute trades in any stock market.
In a demat account, shares and other securities are kept in dematerialized (electronic) format. These accounts allow for the inclusion of bonds, ETFs, mutual funds, and other stock market assets that are equivalent in a portfolio.
Features of Demat Account
The benefits of setting up a Demat account include:
1.Simple Access
You may easily and quickly access all of your investments and statements using net banking.
2.Easy Securities Dematerialization
The Depository Participant (DP) converts all of your physical certificates into electronic certificates and the reverse.
3.Getting Dividends & Benefits from Stocks
It uses speedy and straightforward methods to collect dividends, interest, or refunds. The account is automatically credited with everything. Additionally, the electronic clearing service (ECS) updates investor accounts with regard to stock splits, bonus issues, rights, public issues, etc.
4.Transferring Shares Easily
Transferring shares has become considerably easier and quicker thanks to the use of a demat account.
5.Equity Liquidity
Demat accounts have made it simpler, quicker, and more realistic to profit from the selling of shares.
6.a loan secured by securities
After opening a demat account, one can get a loan against the securities they have in their account.
7.Demat Account Freeze
It is possible to decide to temporarily freeze all or a portion of the securities in a demat account. Eventually, this will make it impossible for funds from any debit or credit card to be deposited into your account.
How Does A Demat Account Work?
- Trading using a Demat account resembles trading in person, although a Demat account is electronic as opposed to physical. To start trading, you place your initial order in your online trading account. The trading and demat accounts must be connected as a result. An order is processed by the exchange after it is placed.
- Prior to the order’s final processing, the availability of the shares, their market value, and the details of the Demat account are all verified. The shares then appear on your statement of holdings once the transaction is complete.
- When a shareholder desires to sell shares, the shareholder shall deliver a written delivery instruction letter specifying the stock. The trading account is then updated with the cash value, and the shares are deducted from the account.
- If you reside in India, you will primarily be working with equities trading and investing, and you can open one of three types of Demat accounts. These three accounts are therefore accessible.
Documents Required for Opening a Demat Account
- PAN card
- Aadhar card
- Address Proof
- Passport size photos
- ID proof
Types of Demat Account
An investor can opt to open demat account of any of the following types-
1.Account Demat Regular
An ordinary Demat account can be opened by any resident Indian citizen.
2.Returnable Depository Account
Non-resident Indian people are permitted to open repatriable Demat accounts. As long as they are linked to NRE bank accounts, these accounts permit the movement of money from abroad.
Demat Account that cannot be returned
3.Non-repatriable accounts
It is an another option open to NRIs, although no foreign currency can be deposited into them. An NRO bank account must be linked in order to possess and operate this type of Demat account.
Benefits of Demat Accounts
- Thanks to demat accounts, physical shares cannot be mishandled, falsified, misplaced, or stolen.
- The computerised approach can be completed in a matter of hours and is also more simpler. The elimination of multiple time-consuming activities has simplified the entire process and saved time.
- As long as customers have registered their net banking accounts with the appropriate financial institution, demat accounts offer advantages for remote access.
- Investors can combine bank accounts and dematerialized accounts to facilitate electronic financial transfers.
- Customers can benefit from a nomination function if they open a Demat account online.
- Owners of accounts who possess a specific unit of securities in their portfolio may elect to have their accounts frozen for a predetermined period of time.
Demat Account Number and DP ID
Investors may also receive a DP ID, or Depository Participant ID, through their favourite broking firm or other financial institutions. The DP ID, a part of the account number, symbolises the first eight digits of a person’s account number.
Both the depository and depository participants use this information when an investor converts physical shares to demat, moves shares from one demat account to another, or transfers money from a demat account to a bank account.
Demat Account Charges
Although opening a Demat account is free for investors, there are fees associated with that account to ensure it runs smoothly. Every brokerage firm, including banks, has a different set of brokerage fees. These are a few of them:
1.Yearly maintenance fees
Almost all companies charge a fee for the annual maintenance of the Demat account. The appropriate charge is determined by depositories for each investor in accordance with a set of regulations.
2019 will see the implementation of a new tariff for Basic Services Demat Accounts, or BSDA, by SEBI. According to the updated guidelines, debt securities up to Rs. 1 lakh would not be subject to an annual maintenance cost, while holdings between Rs. 1 lakh and Rs. 2 lakh may be charged a maximum price of Rs. 100.
2.Custodial Charges
Depository Partners charge a custodian fee either annually or once. The sum is paid immediately by the corporation to the depository (NDSL or CDSL).
3.Charges for Demat and Remat
These fees are calculated as a proportion of the total value of the shares purchased or sold and are intended to cover all expenses related to the physical printing or digitization of securities.
In addition to the fees listed above, an investor is also liable for paying credit charges, appropriate taxes, CESS, rejected instruction charges, etc.
Demat accounts are necessary for stock market investments because they are one of the most widely used methods of investing. But recently, a variety of online platforms provide the advantage of online trading.
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