Introduction
Before 1996, all securities were held in the physical format. With the development of technology and the coming of the internet, things began to go online. The National Stock Exchange (NSE) in India introduced Demat accounts to encourage people to hold their securities like shares, bonds, debentures and exchange-traded funds in the dematerialized format.
What Is a Demat Account?
A Demat account can be considered a bank account for all your security investments such as equity shares, company bonds, government securities, debentures, exchange-traded funds and even mutual funds. Your legal ownership of these securities is reflected in your Demat account. If you want to transact in these securities electronically, it is a must to have a Demat accountto safekeeping them.
Features of a Demat Account
A Bank Account for Securities
A Demat account is where you electronically hold the securities you own. It is different from a trading account. A trading account is required to trade in market securities. But you need a Demat account if you own securities of any kind. That is where you keep your repository of market investments.
Electronic Transfers
With a Demat account, you can transfer securities in a jiffy electronically. All you need to do is fill up the Delivery Instruction Slip and mention to whom to transfer the securities. It makes the whole process of buying and selling securities easier and faster.
Dematerialization and Rematerialization
You can use a Demat account to change physical security holdings into electronic form. You can also convert electronic holdings to physical certificates if you need them for some reason.
Multiple accessing options
Since these new-age accounts are electronically operated, they can be accessed from any electronic device with an internet connection. That means that you can access your Demat account from your smartphone, laptop, tablet, orother smart devices.
Freezing the Account
If you do not want your Demat account to be operational for a while, then you can freeze the account for a specified time. You can also freeze a certain quantity of securities.
Benefits of a Demat Account
Ease of Ownership
A Demat account makes owning and tracking your investments straightforward—no more filing and sifting through dozens of shares and bonds certificates to keep track of ownership. You can view all of it electronically from any device of your choosing.
Lower Risk
Physical certificates can be misplaced or forged easily. An imposter can duplicate your investments and pass them off as their own. With online accounts, forgery is much more complicated.l Demat accounts are secured by the company you open them with, thereby reducing the chances of online theft.
Any Quantity of Securities
With physical securities, it was necessary to buy and sell them only in specific quantities. It was not possible to believe in odd lots or fractions. With Demat accounts, you can now purchase any amount of security that you wish.
Lowered Cost
Before Demat accounts, investors would have to pay several charges such as stamp duty, handling fees, and intermediary expenses. Now, the only charges you have to pay are for the Demat account, which is usually minimal.
Avail Loans
You can pledge the securities in your Demat account to get loans from banks. Essentially, they work as collateral. This is a huge benefit since you can earn dividends, bonuses and rights issue in your Demat account while also borrowing against the sum to make other investments.
Conclusion
If you want to transact in the securities market in today’s India, be it equity shares or debentures, you need a Demat account. To open an account, you will first need to choose a Depository Participant. Then, you have to fill in the required details, submit documents and receive verification. You will then get your account number and client ID, following which you can begin using the account.
Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.