We all know how savings accounts in banks work. They are a safe place for our money, protecting it from theft or misuse. We can access our funds whenever we want. Similarly, in the stock market, demat accounts serve the same purpose, except they store shares and securities in electronic form. These accounts help keep investments safe from fraud and theft.
In this blog, we will explain what a demat account is, its features, types, and benefits in simple words.
What is a Demat Account?
The full form of a Demat account is “dematerialised account”. This account holds shares and other securities in electronic form. It’s like an online portfolio where your investments are securely stored. With this system, physical share certificates are no longer needed, reducing the risk of damage, theft, or misuse.
The National Securities Exchange (NSE) introduced demat accounts in 1996. At that time, the process was manual, and it took several days for investors to open and activate their accounts. Now, technology has improved, and you can open demat account in just 5 minutes with the entire process being digital.
By March 2024, the total number of demat accounts in India had reached 15.1 crores. In March alone, 3.1 million new demat accounts were opened, and this number keeps growing.
How Does A Demat Account Work?
A demat account is managed by depository participants (DP). In India, these include National Security Depository Limited (NSDL) and Central Depository Securities Limited (CDSL). Here’s a simple explanation of how a demat account functions:
- A demat account holds shares and securities in electronic form, making it more convenient to handle compared to physical certificates.
- You may be charged fees by banks or stockbrokers for the setup and maintenance of your demat accounts.
- Typically, your demat account is connected to a trading account, which you use to buy or sell shares.
- When you place a ‘buy’ order, your depository participant (DP) forwards the order to the stock exchange.
- The stock exchange finds a matching ‘sell’ order to complete the trade.
- The clearing house then processes the matched order to settle the transaction.
- After settlement, shares are credited to your demat account, and an equal number of shares is deducted from the seller’s account.
A web trading platform allows investors to execute trades and manage their portfolios online, offering real-time market data and analysis. By integrating a Demat account, users can securely hold their securities in electronic form, simplifying transactions and enhancing investment efficiency.
Features of Demat Accounts
Easy Access
A demat account provides quick access to all your investments and statements through online platforms, making it simple to manage your portfolio.
Simple Conversion of Securities
You can easily switch between physical share certificates and an electronic format by coordinating with your depository participant (DP).
Receiving Dividends and Benefits
Dividends, interest payments, and refunds are automatically credited to your Demat account. You also get electronic updates on stock splits, bonuses, and public issues, all handled through services like ECS.
Easy Share Transfers
Thanks to demat accounts, transferring shares between buyers and sellers has never been easier.
Liquidity of Shares
Demat accounts ensure that selling shares and getting cash is a much faster process.
Loan Against Securities
You can obtain a loan by using the securities in your Demat account as collateral.
Freezing the Account
You can freeze specific securities in your account if needed, preventing any transactions from taking place during the freeze period.
Types of Demat Accounts
Here are the different types of demat accounts:
Regular Demat Account
A regular demat account is widely used by Indian residents. It holds and trades shares and securities electronically. Also, apart from securities, it provides access to bonds, mutual funds, and government securities.
Repatriable Demat Account
Designed for NRIs, a repatriable demat account allows them to invest in India while transferring funds abroad. It requires linking to an NRE (Non-Resident External) account.
Non-repatriable Demat Account
This account is also for NRIs but does not permit transferring funds outside India. A non-repatriable demat account links to an NRO (Non-Resident Ordinary) account, keeping the funds in India while allowing investment in the Indian market.
Benefits of Demat Accounts
Investors who choose to open an online demat account can enjoy various benefits. Here are some of the important benefits:
Security of Shares
With a demat account, your shares are kept safe in electronic form, avoiding the risk of losing or damaging physical certificates.
Easy to Set Up
Opening a demat account online is hassle-free. It takes only a few hours, and the entire process has become much simpler due to its electronic format.
Efficient Trading and Settlement
Using a demat account streamlines trading. Electronic transactions are faster and easier without the burden of managing paperwork.
Remote Access
You can manage your demat account online from any device with internet access—whether it’s a mobile phone, laptop, or tablet.
Online Access and Monitoring
Monitoring your investments is easy with a demat account. You can log in anytime to check your holdings and transaction history.
Easy Fund Transfers
Link your bank account with your demat account, and transferring funds becomes a quick and simple process.
Nomination Facility
When you open an online demat account, you have the option to nominate a person who can inherit your investments in case of unforeseen circumstances.
Conclusion
Today, a demat account is an essential tool for investors. The old way of purchasing or selling shares by manually filling out forms is a thing of the past. Now, with demat accounts, the entire process has become seamless. It’s important to understand every detail about having a demat account so you can make the most of it. Demat accounts have made the overall trading or investing experience easy and convenient.
For a seamless trading experience, download the HDFC Sky app, one of the best trading app in India. This app offers access to over 3,500 listed companies. Open your demat account online today and enjoy a hassle-free trading experience with simplified pricing and zero hidden charges.
Frequently Asked Questions (FAQs)
Can one person have more than one Demat account?
Yes, a person can hold multiple demat accounts. You are allowed to open any number of accounts with a DP (depository participant), and there’s no restriction on how many accounts you can open with the same DP.
Is having a demat account secure?
Yes, your demat account is safe since SEBI supervises and regulates it after activation. If any fraudulent activities occur, SEBI can track down the responsible parties. Since all your documents are stored electronically, you do not have to worry about losing important paperwork. This shows that opening a demat account is a safe choice for trading or investing.
Do I need to provide my bank details when opening a demat account?
Yes, bank account details are required when opening a demat account. This ensures that any payments such as dividends, interest, or redemption amounts go directly to your bank account. Providing correct information helps to maintain smooth communication with issuer companies or Registrars and Transfer Agents (RTAs).
