What Is Demat Account
A Demat Account is similar to a bank account in that it holds electronic share certificates and other securities. Demat Account is an abbreviation for “dematerialization account,” which streamlines the process of holding investments such as bonds, shares, government securities, insurance, mutual funds, and exchange-traded funds by removing the complications associated with the physical maintenance and handling of paper shares and similar paperwork.
Demat Account Meaning
To get a better understanding of what “Demat Account” entails, let’s look at an example. Let’s say you’re interested in purchasing some shares of Company A. Following the completion of the acquisition of those shares, you will be required to have them transferred into your name. In the past, the exchange sent you physical share certificates that bore your name and contained your shareholdings. As you can anticipate, this required a significant quantity of documentation to be completed. Each time a share of stock is purchased or sold, a new certificate needs to be generated. India launched the Demat Account system for NSE trades in 1996 with the goal of reducing the country’s excessive reliance on bureaucratic processes.
These days, there is no paperwork, and no physical certificates are given out. Moreover, there are no longer any physical certifications issued. Consequently, the only thing you will receive after purchasing shares in Company A is an electronic record in your Demat Account. So this is what a Demat Account is: a digital asset account. If you want to invest money in the stock market, you are going to need something called a Demat Account. Electronic settlements of the trades and transactions that you carry out are only possible with the use of your Demat Account number.
How To Obtain A Demat Account
Now that you know what a Demat Account is, let’s look at how to get one. You open a Demat Account with a central depository, such as the NSDL or the CSDL. These depositories appoint Depository Participants (DP) to act as middlemen between themselves and investors. Your banking institution is a DP through which you can open a Demat Account. Financial institutions and stockbrokers are also DPs and can provide you with a Demat Account.
A Demat Account, like a bank account, maintains your investments in electronic form, which is conveniently accessible with a laptop or smart device and Internet. To access it, you only need the unique login ID and password. However, unlike a bank account, your Demat Account does not require any kind of minimum balance. You can get a list of DPs with whom you can open a Demat Account by visiting the websites of any of the depositories. The annual charges of a DP should ideally be considered before selecting one. You should be aware that you have multiple Demat Accounts, but not with the same DP. As a result, a single PAN card can be linked to several Demat and Trading Accounts.
Demat Account Details
Once your Demat Account is established, ensure that you obtain the following information from your DP:
- DP ID: The depository participant is assigned a DP ID. This ID is a component of your Demat Account number. If it falls under CDSL, it is referred to as a ‘beneficiary ID.’ It consists of 16 characters.
- POA number: This is part of the Power of Attorney agreement, in which an investor authorises the stockbroker to run his or her account in accordance with the instructions supplied. You will also be given a unique login ID and password for online access to your Demat and Trading Accounts.
Demat and Trading Accounts
A Demat Account is frequently accompanied by a trading account, which is required for trading shares on the stock exchange. People frequently confuse Demat and Trading Accounts. They are not the same thing. A Demat Account holds information about the shares and other securities that you own. To buy and sell stocks, you must first register a Trading Account. Many banks and brokers provide Trading Accounts with online trading capabilities, making it easier for average investors to participate in the stock market.
Different Types Of Demat Account
Now that we are familiar with the meaning of “Demat Account,” let’s have a look at the many types of “Demat Account.” There are three primary types, which are as follows:
- Repatriable Demat Account: For NRIs, this type of Demat Account allows money to be transferred abroad. This sort of Demat Account, however, must be linked to an NRE bank account.
- Regular Demat Account: This is only available to Indian people who live in the country.
- Non-Repatriable Demat Account: This is also for non-resident Indians (NRIs), but it is not possible to move funds overseas using this type of Demat Account. In addition to that, it needs to be integrated into an NRO bank account.
What Is The Use Of A Demat Account
Having shares and other assets held in a demat account is a convenient and risk-free way to do so. It protects the physical certificate from being stolen, forged, lost, or damaged in any way. By using a Demat account, you will be able to effect quick transfers of securities. After the trade is finalised, the digitally transferred shares are delivered to your account. In addition, whenever an event occurs such as stock bonuses, mergers, or any number of other similar occurrences, shares are immediately awarded to your account. You can have access to the information about these activities that is contained in your Demat account by logging into the website.
You can trade at any time, anywhere, using either your mobile device or a desktop computer. Because of this, you do not have to physically go to the stock exchange in order to conduct business there. Because the transfer of shares does not include the payment of stamp duty, you also save money by avoiding the associated processing fees. Investors are encouraged to trade more frequently, which increases the likelihood that they will make big profits thanks to the advantages and benefits of a Demat account.