Needs and Advantages of Opening a Demat Account

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Introduction

Everybody used to think if we want to invest in the stock market then it is a very complex process to open an account. It takes a lot of time and if we want to choose a stock we will have to go to different places after which we think to start our journey in the stock market investment. Whenever we buy a new share, that particular share is kept in an electronic form of an account, this account is a called Demat account (Dematerialized account). 

If we trade money whether it’s taking money or giving money we use our bank account and keep our money safe in the bank account when we want to give money to someone we transfer the money to him/her and when someone has to give our money then our money gets transferred to our bank account. So in similar terms, we have to trade share in the share market. 

Suppose if we want to purchase a particular company’s share say if company ‘A’ share is rs100 and bought a share after few days we want to sell it. This process will be going on with the help of the Demat account. Just like in a bank account money is deposited and withdrawn, similarly in the Demat account stocks are transferred at our authorization.

In India, two organizations hold the information of this account- National Securities Depository Limited (NSDL) and Central Deposited Service Limited (CDSL). 

A depository participant such as a bank acts as an intermediary between the investor and the depository but nowadays there is much application which helps to open Demat account and start trading like Upstox, Groww, Zerodha, Motilal Oswal, etc.

Some documents are mandatory to open the Demat account:-

• Permanent Account Number(PAN)

• Bank Statement( Last 3 months)

• Know Your Customer(KYC)

• Aadhar card

A Demat account is an account that is used to hold the security of the company in an electric form. If a person wants to invest and trade in the stock market the first step is to open a Demat account. Demat account is opened by our broker on our behalf.

After giving all of this information, our Demat account is opened. After opening a Demat account, we receive a mail that has a CMR (Client Master Report) copy. CMR tells us all the details regarding our Demat account such as Name, address, and the linked bank account details. Another use of the Demat account is to apply for an IPO (Initial Public Offering).

One advantage of having a Demat account in trading, it provides a similar function that is provided by a bank account to store your money. Each Demat account has a specific account number and password for security and each transaction or transfer or securities made with the Demat account also comes with its own transaction password.

Features of Demat account

• Investors can transfer their holdings by Delivery Instruction Slip (DIS) or receipt Instruction Slip (RIS) for inflow and outflow of shares. These slips provide all the information that helps to account holder to transaction smoothly.

• Several lenders provide loans against securities that are held in the Demat account of the borrowers. These holdings are used as collateral to avail loans by account holders.

• Demat account holders can freeze their accounts according to their suitability. this option is useful if one wants to stop unforeseen debit or credit. This option is available up to a limit held in the account.

• If a finance company offers dividends, refunds, or interest to their investors, these options are automatically available in the Demat account

• The National Securities Depository Limited (NSDL) permit holders to transfer instruction slip electronically. It makes transfers more efficient, effective, and less time-consuming.

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Advantages of Demat account

• It reduces the cost of maintaining an account and time of trading

• It is an easy and convenient way to hold securities

• Reduce paperwork for transfer securities

• A single Demat account can hold the investment in both equity and debt instruments

• Traders can work from anywhere and anytime

• Lower risk to theft, losses, or damage. These risks are eliminated by opening a Demat account.

Demat account charges and fees

In the case of our Demat account too, we have to pay some charges for trading. There are many charges like-

• Account opening charges- It is a one-time charge to open an account.

• Brokerage charge- This charge is applicable on the buy and sells of securities. The charges percentage depends on the type of transactions and every bank has its different charges percent.

• Annual maintenance charges- Brokerage firms levy maintenance charges annually on the Demat account generally they are rs150 p.a to 900 p.a.

• Depository charges- This charge is a levy on delivery but only on the sell-side.

Written By - Lakshya Thakur

Edited By - Anamika Malik