A Demat Account, also known as a Dematerialised Account, allows you to hold shares and securities in an electronic format. Shares are purchased and held in a Demat Account during online trading, making it easier for users to trade. A Demat Account consolidates all of an individual’s investments in stocks, government securities, exchange-traded funds, bonds, and mutual funds.
Demat enabled the digitisation of the Indian stock trading market and compelled SEBI to improve governance. Furthermore, by storing securities in electronic format, the Demat account reduced the risks of storing, theft, damage, and malpractices. NSE first introduced it in 1996. Initially, the account opening process was manual, and investors had to wait several days for it to be activated. A Demat account can now be opened online in 5 minutes. The end-to-end digital process has helped to popularize Demat, which has grown in popularity since the pandemic.
Demat Account Meaning
The term “Demat” refers to the process of converting physical shares and securities into electronic form. Demat Accounts are required to hold shares electronically rather than on paper. Demat Accounts safeguard the shares, reducing the risk of share loss or forgery. It is a simple way to trade securities quickly. A Demat account and a trading account are required to trade stocks on the stock exchange.
What is Dematerialisation (Demat)?
The process of converting physical share certificates into electronic form, which is much easier to maintain and accessible from anywhere in the world, is known as Dematerialisation. To trade online, an investor must open a Demat account with a Depository Participant (DP). The goal of dematerialisation is to remove the need for investors to hold physical share certificates while also allowing for seamless tracking and monitoring of holdings.
Previously, the process of issuing share certificates was time-consuming and cumbersome, which Demat has helped to transform by speeding up the entire process and storing security certificates in digital format. Once your Demat account has been activated, you can convert paper certificates to digital format by submitting all of your physical securities along with a Dematerialisation Request Form (DRF). Remember to deface each physical certificate with the words ‘Surrendered for Dematerialisation’. When you surrender your share certificates, you will be given an acknowledgement slip.
Important of Demat Account
A Demat account is a convenient and secure way to hold shares and securities. It prevents physical certificate theft, forgery, loss, and damage. You can transfer securities immediately with a Demat account. The shares are digitally transferred to your account once the trade is approved. Furthermore, in the event of events such as stock bonuses, mergers, and so on, shares are automatically credited to your account. By logging into the website, you can access your Demat account information regarding these activities. You can trade on the go with your smartphone or desktop computer. As a result, you do not need to go to the stock exchange to transact. You also save money on transaction costs because there is no stamp duty involved in the transfer of shares. These features and benefits of a Demat account encourage investors to trade more frequently, increasing the potential for lucrative returns.
Having a demat account has made it easier to manage stocks. The Indian exchanges now adhere to the T+2 day settlement cycle made possible by the Demat account. When you buy shares after the settlement cycle, you pay the seller on the second business day, and your Demat account is automatically credited with the purchased securities. Demat accounts have simplified and streamlined the process of trading securities.
Benefits of Demat Account
- Shares are transferred smoothly and quickly.
- Allows for the digitally secured storage of securities.
- Security certificates are no longer stolen, forgeried, lost, or damaged.
- Simple trading activity tracking
- Access at all times
- Allows for the addition of beneficiaries
- Automatic crediting of bonus stocks, rights issues, and stock splits
How does a Demat Account work?
Trading through a Demat account is similar to trading in person, except that a Demat account is electronic. You start trading by entering an order into your online trading account. Both trading and Demat accounts must be linked for this purpose. When an order is placed, the exchange will process it. Before final processing of the order, the demat account details the market price of shares and the availability of shares is verified. Following the completion of the processing, the shares are reflected in your statement of holdings. When a shareholder wishes to sell shares, a delivery instruction note detailing the stock must be provided. The account is then debited for the shares, and the cash value is credited to the trading account.
According to the Depository Act of 1996, having a Demat account is required. In order to facilitate this, the National Securities Depository Limited (NSDL) was established in 1996. Three years later, the Central Depository Services Limited (CDSL) became the second such institution. The two agencies work together to keep track of all electronic securities held by investors. They provide Demat account opening services through a number of depository participants, including Angel One. SEBI has registered both agencies and their partner brokers.
The opening of a Demat account involves three parties: your bank, the depository participant, and the depository. Tagging your bank account with your Demat account is essential for smooth trading. When you link your account details, the money is debited directly from your bank account when you buy shares, and the proceeds are automatically credited when you sell.
A non-banking financial institution, a bank, or a stockbroker can all be depository participants. To open a Demat account, you would need to contact a DP. The depository is obviously the third party. They manage your Demat account on your behalf.
Types of Demat Account
- Regular Demat account:- Regular Demat accounts are for resident Indian investors who want to trade in shares alone and require security storage. When you sell stocks, your Demat account is debited, and when you buy, your account is credited. Because F&O contracts do not require storage, you do not require a Demat account.
- Basic Services Demat Account:- The SEBI has introduced a new type of Demat account. If the account balance is less than Rs 50,000, no maintenance changes are made. The difference between Rs 50,000 and Rs 2 lakh is Rs 100. The new account type is aimed at new investors who have yet to open a Demat account.
- Repatriable Demat Account:- Non-resident Indian investors open a repatriable account in order to transfer their earnings from the Indian market to another country. To receive payments from a repatriable account, you must close your regular Demat account in India and open a non-resident external account.
- Non-repatriable account:- This is a type of Repatriable Account that is also used by Non-Resident Indians. This account, however, cannot be used to transfer funds abroad, and it requires an associated NRO bank account to function properly.
How to Open Demat Account?
Step 1: Selection of DP
Step 2: Fill out the Dematerialization Request Form
Step 3: Submission of necessary documents for verification
Step 4: Signing of agreement between an investor and the DP
Step 5: Verification of Documents
Step 6: Creation of the account
Benefits of Demat Account
- No Stamp duty on transfer of securities.
- Immediate and fast transfer of securities.
- Elimination of ‘Bad Deliveries’.
- Elimination of risk by loss, theft, mutilation etc.
- Faster settlement and disbursement of Corporate benefits like Bonus, Rights, Dividends etc.
- Elimination of mismatch in Bank Accounts and Address.
- Convenient Nomination facilities.
- Convenient Transmission formalities in case of death of a holder.
- No TDS deduction for demat securities.
- Demat account information and statement regularly sent to the customer.
FOR MORE INFO CLICK THIS SITE:https://learningsharks.in/
FOLLOW OUR PAGE:https://www.instagram.com/learningsharks/?hl=en