Like a bank account holds your deposit certificates and money, the demat account holds your financial securities. It acts like a safety vault for your securities. The wide range of financial securities that can be held in a demat account include:
- Equity Shares
- ETFs or Exchange Traded Funds
- Corporate Bonds
- Mutual Funds
- Government securities
As these securities are stored in an electronic form in a demat account, it becomes easier to transact and monitor them.
Why do we need a demat account? How does it streamline the process of trading?
Trading securities that are available in physical form is cumbersome. It also requires much paperwork that not only complicates the process but also delays the settlement procedure. The demat account streamlines the trading process by providing the securities in electronic format. You can also convert the physical securities into electronic form by using the process of dematerialisation. When the shares or other securities are available in electronic format, they are more accessible and secure.
A trading account is linked to the demat account and a bank account to facilitate hassle-free transactions. All the transactions from fund transfers to order placement and execution can be managed online with the help of a demat account and trading account.
Advantages of having a demat account
Apart from holding different types of financial instruments, there are various other advantages of having a demat account. Some of these key advantages have been mentioned below:
Easy transfer of shares
Transferring shares from one demat account to another is possible by using a DIS (Delivery Instruction Slip). You can also register on CDSL’s website for Easiest service or NSDL’s website for Speed-e-service. These services allow you to transfer the shares online using the demat details of both accounts.
If you hold some shares in your demat account, you can pledge it to obtain a loan. The pledged shares will be used as collateral by a bank or any other financial entity while approving your loan application.
Even though you pledge your shares for obtaining the loan, the corporate actions related to the shares such as dividends, bonus shares, stock splits, etc. will be credited to your demat account as usual.
Easy accessibility facilitated by smartphones & laptops
You can access your demat account online by using a web browser or a mobile application these days. This allows you to monitor your holdings and handle your demat account from any remote place across the world. You only need a smartphone, laptop, and internet connection to track your investments remotely. With the availability of trading apps, it is also possible to buy and sell shares from any region of the world. It allows you to leverage the real-time movement of stocks and earn profits.
You can open a demat account instantly by visiting the website of a DP (Depository Participant) who offers the kind of services you need to trade at affordable brokerage rates.
Dematerialisation & Rematerialisation
If you have some physical share certificates and want to convert them into electronic form, you can adhere to a process known as dematerialisation. You can also get your electronic shares converted into physical share certificates upon requirement. This process is called rematerialisation. Both these procedures can be availed of if you have a demat account.
Elimination of stamp duty charges and documentation
There is no requirement for paperwork for buying and selling shares once you open a demat account. The trades are settled electronically and this eliminates the need for documentation. As no documentation is required, it also negates the need of paying stamp duty and other charges associated with documentation.
It is easy to get corporate benefits if you own a demat account. Companies credit the bonus shares, stock splits, dividends, and other corporate benefits directly on the demat account of the shareholders. You can keep the credit option open even if you have freezed your demat account for a specific period. It will ensure that you keep receiving the corporate benefits even when you don’t indulge in trading.