Features and Benefits of a Demat Account 

The process of converting physical certificates of securities that a trader purchases from the stock market to electronic form is called dematerialisation. To hold and access these electronic certificates, you must have a Demat account.

The Securities and Exchange Board of India (SEBI) has made it mandatory for every investor/trader dealing in the Indian stock market to hold a Demat account. Since their introduction in 1996, Demat accounts have enabled the digitisation of our stock market and eliminated the hassles of storage and paperwork involved with physical securities. 

This blog will take you through the benefits and features of a Demat account in detail.

What Is a Demat Account?

Similar to your savings account, a Demat account is an account that stores shares, ETFs, bonds, government securities, mutual funds, futures and options. These accounts hold such securities in the digital format and allow easy online trading via a trading account with a broker. Investors can also keep track of their investments through their Demat accounts.

Since its inception, Demat accounts have revolutionised trading in the Indian stock market. Because of demat accounts, you do not need to worry about holding physical certificates of your stocks, which can easily get damaged, lost or stolen. You can also convert physical share certificates in their dematerialised format at your convenience. 

What Are the Features of a Demat Account?

Let’s look at the features of Demat accounts that make trading hassle-free and seamless.  

  • 24-hour Access

As Demat is a digital account, you can access it anytime from your mobile phone or PC and trade using net banking. You can also check your account statement and holdings and make transactions.

You can open your Demat account via your depository participant’s app or website on your smartphone or mobile. 

  • Hassle-free Holding of Shares

With a Demat account, you can leave behind worrying about safely holding your shares, mutual funds and other assets. This account stores shares securely in electronic format. This reduces the chances of misplacing your shares.

  • Fewer Risks Involved

As physical securities are more prone to theft and damage, trading with them is relatively risky. However, a Demat account ensures the complete safety of your securities as you do not need to hold or trade with them physically. Furthermore, it keeps the securities safe in an online repository so that only you can access them.

  • Freezing Demat Account

Demat account holders have the power to freeze specific quantities or types of securities for a certain period. Using this facility, they can stop any unauthorised transfer of securities.

  • Quick Receiving of Dividends and Other Compensations

Before Demat accounts, the transfer of dividends and interests from companies to shareholders was a time-consuming process. However, since its introduction, the transfer of dividends happens instantly, requiring no input from the investor. Bonus issues, stock splits, refunds etc., are also credited automatically.

What Are the Benefits of a Demat Account?

Besides the above features, here are the benefits of having a Demat account:

  • Cost Effective

Unlike physical trading, Demat accounts are comparatively cost-effective. You only need to pay specific charges to maintain the Demat account. These charges are applied periodically. 

Therefore, consider studying the additional charges of your DP before choosing one. This way, you can save a good amount of money from additional charges for a Demat account. 

  • Prevents Theft and Losses

Traders run a high risk of falling victim to theft or fraudulent activities if they use physical certificates of securities. In contrast, depositories monitor transactions between traders and companies via Demat accounts through depository participants. This reduces the risk of theft of fraud to a considerably low level.

Furthermore, this account holds all your transaction information in digital format. As a result, you will never lose track of your securities.

  • Allows Global Investments

Demat accounts promote digitised trading approach. This platform allows NRIs and foreign traders to invest in the Indian stock market.  This helps the proliferation of the Indian economy. 

  • Facilitates Quick Transactions

Before Demat accounts, buying and selling securities was an elaborate process and took several days. However, with the help of Demat accounts, security transactions can happen in a few minutes without much hassle. 

  • Access to debt

You can use the securities in your Demat account to get leverage from your broker. Thus, by using securities held in your Demat account to borrow funds you can increase your positions and increase the potential for profits.

Things to Consider While Opening a Demat Account

Before opening a Demat account, it would be best to keep certain things in mind.

  • Know the Additional Charges 

You must pay additional charges like AMC (Annual Maintenance Charges) and transaction fees to hold, manage and trade using your Demat account. These charges are compulsory. However, their value may vary between depository participants. 

Therefore, consider knowing these additional charges before choosing a depository participant to open a Demat account. You can opt for brokers with low or minimal additional fees so that maintaining a Demat account does not burden your finances. 

Furthermore, many depository participants don’t charge maintenance fees during the first year of account opening. You can research such offers from brokers and choose a depository participant to open a Demat account.

  • Know your Financial Motives And Goals 

Demat account ensures safe and smooth trading in stocks and other securities. SEBI has made it mandatory for investors who wish to purchase and hold stocks to open a Demat account. This makes having a Demat account necessary for investing in stocks.

However, before opening a Demat account, you must be clear on your trading goals. Without a clear idea, holding a Demat account might turn into an extra liability. You may have to pay the necessary charges to keep your account active, even though you are not dealing in  securities. If you do not want to invest in electronic securities, you may not need a Demat account.

  • Open Demat and Trading Accounts with the Same Broker

Traders also need to have a trading account along with a Demat account to participate in the share market. Opening both these accounts with the same depository participant makes trading more convenient and simple. 

It also saves you from the hassles and consequences if one of your DP does not hold a licence. In such cases, you need to present a Debit Instruction Slip (DIS) for every transaction with different brokers. You must do so to avoid losses and bad delivery.  

Today, most stockbrokers allow you to open trading-cum-Demat accounts to save time. But before you choose a DP, conduct thorough research about their platform and service quality.

Final Words 

A Demat account eliminates the role of intermediaries and makes trading in the Indian stock market convenient and hassle-free. The benefits and features of a Demat account highlight its importance for traders to purchase, hold and sell securities anytime. Do not share your Demat account credentials with anyone to ensure safe trading practices.

Frequently Asked Questions

  1. What documents do I need to Open a Demat account?

The PAN card is the most important document to open a Demat account in India. You also need documents for address, income proof, and bank statements. The Aadhaar card, utility bills, ITR statements and photographs may also be required.

  1. Who is eligible to open a Demat account in India?

Both resident and NRI Indians are eligible to open a Demat account in India. However, one must follow some specific terms and conditions to open a Demat account for minors. Individuals above 18 years can open trading and Demat accounts in their name, but they need a written consent of their guardian.

  1. Who are the primary depositories in India?

India has two primary depositories that look after trading in the stock market via Demat accounts. They are Central Depository Services Limited (CDSL) and National Security Depository Limited (NSDL).

  1. What will I receive after opening a Demat account?

Upon successfully activating your Demat account, you will receive a Demat account number and login credentials via email. Please do not share these credentials with anyone, especially to strangers/unknown persons to protect your Demat account from any misuse.

Credit Principal at Wint Wealth
Was this article helpful?

Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

Leave a Comment