A Demat account, short for Dematerialized Account is a digital account that holds an individual’s securities in an electronic format. In other words, a Demat account allows investors to hold and trade shares, bonds, mutual funds, and other securities in electronic form, rather than in paper certificates.
The purpose of a Demat account is to facilitate the easy and secure transfer of securities without the need for physical delivery. When a person buys or sells shares, the transaction is automatically updated in their Demat account, making it easy to track holdings, view account statements, and perform other transactions related to their investments. A Demat account is opened with a Depository Participant, who acts as an intermediary between the investor and the depository. In India, there are two Depositories: the National Securities Depository Limited and the Central Depository Services Limited, which hold and maintain the electronic records of the investor’s securities. Demat accounts have made trading and investing in securities more convenient, secure, and accessible to a broader range of investors.
Types of Demat Account?
Regular Demat Account: This type of account is suitable for individual investors who want to hold their securities in an electronic format. It can be opened with any registered Depository Participant such as a bank or a brokerage firm. Regular Demat account holders can buy, sell, and transfer securities as per their investment goals and strategies.
Beneficial Owner Demat Account: This type of account is suitable for those who invest in securities through a broker or a sub-broker. In this type of account, the investor is the beneficial owner of the securities, while the broker or sub-broker holds the securities on behalf of the investor. BO Demat account holders can view their holdings through the broker’s or sub-broker’s back-office portal.
Repatriable Demat Account: This type of account is suitable for Non-Resident Indians who wish to invest in Indian securities and repatriate their profits abroad.
Non-Repatriable Demat Account: This type of account is suitable for NRIs who wish to invest in Indian securities and keep their profits in India.
Corporate Demat Account: This type of account is suitable for companies or institutions who wish to hold their securities in an electronic format.
Joint Demat Account: This type of account is suitable for two or more individuals who wish to hold securities jointly.
Benefits of Demat Account:
Demat accounts provide a range of benefits to investors, making it a popular choice among investors in India. Demat account has several advantages over holding physical securities. It provides investors with a secure, convenient, and efficient way of holding and trading securities.
Easy and Convenient: Demat accounts have made investing and trading in securities more convenient as it eliminates the need to handle physical certificates, making it easier to transfer, buy or sell securities.
Safe and Secure: Demat accounts provide a secure way to hold securities as there is no risk of theft, loss, or damage of physical securities. Also, it reduces the chances of fraud or forgery as the securities are held in electronic form.
Cost-effective: Demat accounts save the investor from the recurring costs of holding physical certificates, such as stamp duty, custodial charges, and handling fees, as well as courier or postage expenses.
Quick and Efficient: With a Demat account, the process of transfer or settlement of securities is faster as it eliminates the need for physical movement of securities or other documents.
Easy Monitoring: Demat accounts provide easy monitoring of investment portfolios as all holdings are available in a single account. Investors can easily track their transactions, holdings, and account statements.
Access to Corporate Benefits: Investors holding securities in Demat form can easily avail of corporate benefits like bonus shares, dividends, and rights issues as they are automatically credited to their Demat account.
Fractional Ownership: A Demat account allows investors to purchase fractional ownership in securities, which makes it easier to diversify their portfolio and invest in securities that would otherwise be too expensive to purchase in whole numbers.
Access to IPOs: With a Demat account, investors can apply for Initial Public Offerings (IPOs) online, providing easier access to new issues.
Loan Against Securities: Investors can avail of loans against the securities held in their Demat account. This allows investors to access funds while still holding onto their securities.
Reduced Paperwork: With a Demat account, investors can do away with the cumbersome paperwork associated with the transfer and trading of physical securities. This makes the process of investing more streamlined and efficient.
Transmission of Securities: In case of the death of the account holder, the transfer of securities held in a Demat account to legal heirs or nominees is a much simpler process compared to physical securities.
Is Demat account free?
Yes, the Demat account opening is free of cost. However, there a few additional charges. Demat account providers may charge fees for account opening, annual maintenance, transaction charges, and other services. However, the fees and charges may vary among different Demat account providers. It is important to compare the fees and charges of different Demat account providers before choosing one. Some providers may offer lower fees and charges or even waive them under certain conditions, such as maintaining a minimum balance or trading volume.
The minimum balance requirement for a Demat account can vary among different service providers. Some providers may not require any minimum balance, while others may have a minimum balance requirement that can range from a few hundred to a few thousand rupees. It is important to check with the service provider to determine the minimum balance requirement for their Demat account. Some providers may charge penalties or fees if the minimum balance is not maintained. Therefore, it is important to maintain the minimum balance or inquire about the consequences of not meeting the minimum balance requirement.
FAQ On Demat Account:
What is a Demat Account?
A Demat account is an account that allows you to hold and trade securities in an electronic form. It is similar to a bank account, but instead of holding cash, it holds securities like stocks, bonds, and mutual funds.
Who can open a Demat Account?
Any Indian citizen or non-resident Indian can open a Demat account. Some brokers also offer Demat accounts for companies and trusts.
What are the documents required to open a Demat Account?
You will need to provide proof of identity and address, such as a PAN card, Aadhaar card, passport, driving license, or voter ID. You will also need to provide a cancelled cheque and a passport-sized photograph.
What are the charges for opening and maintaining a Demat Account?
The charges for opening and maintaining a Demat account vary from broker to broker. Some brokers offer free Demat account opening, while others may charge a one-time fee or an annual maintenance fee.
Can I have multiple Demat Accounts?
Yes, you can have multiple Demat accounts, but it is not necessary. It is recommended to have only one Demat account for ease of management.
How can I trade using a Demat Account?
You can trade using a Demat account by placing buy or sell orders through a stockbroker or an online trading platform. The securities will be debited or credited to your Demat account based on the transaction.
Can I convert physical shares into electronic form using a Demat Account?
Yes, you can convert physical shares into electronic form using a Demat account. This process is called dematerialization and can be done through your broker or depository participant.
Is a Demat account necessary for investing in mutual funds?
A Demat account is not necessary for investing in mutual funds. Mutual funds can be purchased directly from the fund house or through a broker without the need for a Demat account.
