What is a Demat Account?
A demat account is an online repository that holds your financial assets in the stock market. It is an account with Depositories – the NSDL and the CDSL in India. It can be considered safe online storage provided by national depositories through their registered agents known as the Depository Participants (DPs). The securities you hold will be debited and credited from/to your demat accordingly as per your trade executions.
Why Demat Account is a Must for Investors Today?
A demat account is called the gateway to enter the stock market. No demat account means no stock investments in the demat trading system simply because the stock market operates online with the help of numerous stock exchanges.
Now the stock market is based on dematerialised securities. One can trade only electronic securities under the surveillance of the Securities Exchange Board of India (SEBI). Companies are instructed to issue their shares in dematerialised form. If someone holds securities in paper form, they have to dematerialise them to trade further on the stock exchange.
Stock exchanges allow investors/traders to trade securities domestically and internationally. But you cannot approach a stock exchange directly. You need to open demat account along with a trading account to connect to the stock exchange.
The Role of a Demat Account in the Online Trading System
The primary function of a demat account is to hold your shares, bonds, mutual fund units, government securities, commodities and other securities you own in the stock market. It is used for various other functions also. Let us discuss the role of demat accounts in the stock market.
A Demat Account Holds Securities Regardless of Investment Duration
A Demat Account allows investors to hold their dematerialised financial securities electronically irrespective of time frames. As digital storage, it keeps your securities, like a bank account that holds your money. A regular demat account allows you to hold multiple financial products for as long as you want to grow them to meet your investing goals. Stock brokers offer demat services against minimal charges. Discount broker demat services are offered at low demat account charges as compared to full-service brokerages.
It is a Security Tool.
Earlier in the outcry trading system, investors were burdened with paper-based certificates of shares. Those physical certificates came with the risk of loss, damage, theft or fake securities. Demat account has eliminated such a burden because it holds shares in electronic form and saves you from the botheration of such risks.
It Facilitates Easy and Quick Transfer of Securities
Demat account works online. It takes only two days from the transaction date to credit or debit your securities. Whenever you need to buy/sell securities on the stock exchange, place the order on the stock exchange online using your trading account, and you will see your securities added or deducted from your demat account. Like an outcry trading system, you need not wait for a long time to get ownership of your shares.
Complete the Dematerialisation Process for Paper-based Stocks
If you have got some old shares in the paper form as the legal beneficiary and want to sell them in the stock market, you have to change the form of your shares. It must be in dematerialised form. You need to open a demat account and receive the shares electronically for further trading options.
It is a Monitoring Tool for Your Investments
Your demat account secures multiple securities. It is a single account that allows you to keep all your securities in one place and make you track your securities conveniently. You can keep tracking each and every security on your own. Look at the growth graph of your investments on a daily basis.
All these functions in the online trading system make a demat account mandatory for every investor. Open your demat account online with a discount broker and grab opportunities available in the stock market.