What is Demat Account? This question most popular in the Investing world. Of course, some people know and some don’t. This question was/is asked by many people but the most of the time they want to invest in the Stock Market or they gaining some external knowledge. Well, in our previous article we discussed the common and popular stock market scams; be aware from those. So, without a further due let us start our topic What is Demat Account..
What Is Demat Account?
Have you have any bank account, might be you have or not it do not affect our question. Well, demat account is like bank account: you can deposit your money or vice-versa. But you are not going to gain any interest on your deposits, you cannot pay your bills, you cannot transfer money in to others account, etc in demat account. So, now the question is what is use of demat account? why should I need?
Demat account is the Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialized account for the purpose of transacting. In simple words, if you want to trade or invest in the stock market you should need a demat account. Without demat account you cannot take or release any trade or delivery of stock.
In past, there is no any existence of demat account, if you want to purchase or sell some stocks then you need to contact the broker and they will gives you the physical certificate of stocks in return of your money. But now all things are going through technology and virtual.
Motive of Demat Account
India adopted the DEMAT ACCOUNT for electronic storing, wherein shares and securities are represented and maintained electronically, thus eliminating the troubles associated with paper shares. After the introduction of the depository system by the Depository Act of 1996, the process for sales, purchases and transfers of shares became significantly easier and most of the risks associated with paper certificates were mitigated.
In 1996, trading began on NSE for shares held in demat account form. It was the beginning of a new paperless trading stock market trading environment. If an investor buys a share today, it gets credited to the investor’s account in two days. Today, shares get transferred to the investor’s demat account.
Benefits Of Demat Account
- Easy and convenient way to hold shares
- Zero risk of theft unless your account will hacked
- Reduced the burden of exchange as well as investor
- People can invest or trade from anywhere (but internet is required)
- Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)
- No “odd lot” problem: even one share can be sold or bought
- Transmission of securities is done by Depository Participant (DP), eliminating the need for notifying companies
- And a lot more
Disadvantages of Demat Account
- Trading in securities may become uncontrolled in case of dematerialized securities.
- It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized securities and see to it that trading does not act as a detriment to investors.
- For dematerialized securities, the role of key market players such as stock-brokers needs to be supervised as they have the capability of manipulating the market.
- Multiple regulatory frameworks have to be conformed to, including the Depositories Act, Regulations and the various Bye-Laws of various depositories.
- Agreements are entered at various levels in the process of dematerialization. These may cause worries to the investor desirous of simplicity.
- There is no provision to close a demat account, which is having illiquid shares. The investor cannot close the account and he and his successors have to go on paying the charges to the participant, like annual folio charges etc..
- After liquidating the holdings, many Indian investors don’t close their dp account.They are unaware that DPs charge even on dormant accounts.
How To Open A Demat Account?
You can open your demat account by contacting banks, and SEBI authorized brokers. Some Indian banks provide this service like HDFC bank, ICICI, SBI, and others. And Some SEBI registered brokers also provide this service like ShareKhan, Zerodha, Motilal Oswal, and others.
You contact them by physically going to their branch or you can also do one thing to lose your reduce your burden and less relax your legs or vehicles by visit their website and registered with them they will soon contact you.
Documents Need For Demat Account Opening
In past you have to give your several id’s but with the introduction of demat account the burden is reduced. There are some documents are required and necessary for account opening. They are as follows:
- PAN (Compulsory)
- Bank statement (sometime they ask and sometime not. Required of last 6 months)
- Address Proof (Sometimes but when in I opened they did not ask)
- Two or three color passport size photographs
- Bank crossed Cheque (It is required when your broker charge account opening fees and when you do not give bank statement of past 6 months, a canceled crossed cheque)
- KYC details
- Aadhar Card
These above documents are most of the time required but time to time they are changed. Do not worry about change they will tell you details when you apply for account. And that’s all your account has been opened.
I hope you get what you are looking for and understand what us demat account. If have any question then ask in comment section below I will be more happy to help you there.
I will be publish a article on best best brokers where you can apply for demat account in terms of cost, services, and other. So, subscribe to our newsletter for the notification and when I post that article I will update that here…!