What is a Demat account and how does it work?

National Stock Exchange (NSE) first introduced Demat or dematerialised accounts in India in 1996 and since then it transformed trading of securities and made it faster, more secure, efficient and convenient. 

In order to start investing a Demat account is must. A Demat account allows investors to buy, sell and store stocks, bonds, ETF’s, mutual funds etc. in electronic form. Before the Demat account, trade of securities was done in the form of physical certificates which made transactions as well as storage of securities insecure. With the help of Demat account storage and transaction of securities were done in a secure manner and time required for clearance is also reduced. Also, Demat account eliminated the risk of fraud, attracted more investors which increased the volume of trading and lowered the brokerage rate. 

Today, in order to invest or trade in equities, bonds, ETFs and other securities it is mandatory to have a demat account.

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Benefits of Demat Account

A demat account allows investors and traders to perform electronic trading of stocks, bonds, mutual funds, exchange traded funds, futures, options and commodities. 

Since the trading is done electronically therefore there are many benefits of having a Demat account:

  • Fast transactions of any security.
  • There is no risk of losing or damage of physical certificated from storage or in transportation.
  • Fastens the process of clearing and settlement of transactions.
  • The risk of fraud and fake or forged share certificates gets eliminated.
  • Brokerage gets reduced and also there is Reduction in cost of transactions.
  • No paperwork required for transfer of securities

Importance of Demat account

A Demat account is a convenient and secure way of holding shares and securities. As discussed above It eliminates the risk of forgery, loss and damage of physical certificates from storage or transportation. A Demat account helps you to transfer securities immediately.  On the approval of trade, shares are digitally transferred in your account. Also you do not need to visit the stock exchange for transactions as you can trade on-the-go using your smartphone or desktop. Since there is no stamp duty involved in transfer of shares the transaction costs also get reduced. These features and benefits of a Demat account encourage a larger trade volume by investors, thus increasing the potential for lucrative returns.

How does a Demat Account work?

A Demat account works similar to a bank savings account. In savings accounts you can store cash in electronic form in a bank, while in a Demat account you can store securities. you can open a Demat account on ICICI Direct and SAMCO. Trading through a Demat account is similar to the procedure of physical trading, except that a Demat account is electronic. When you buy shares or securities, those are credited to your demat account and debited when you sell them.

But first you need to link both trading and Demat accounts. When the order is placed the process will get started. The market price and availability of shares is verified. When the process gets completed, the shares are reflected in your statement of holdings. If a shareholder wants to sell shares, then an instruction note which contains details of stock has to be provided. Shares are then debited from the account and the equivalent cash value is credited to the trading account.

Participants in the Demat Account Opening Process

There are 3 key players in the demat account opening process. First, is your bank; second is the DP; and third is the main depository.

  • Bank – Bank plays an important role in Demat account opening. In order to buy securities, it is mandatory to link your savings account with your Demat account because money from your bank is used to buy securities. Once you buy securities, then they are credited to your Demat account. When you sell them, the securities are debited from your demat account.
  • Depository participant (DP) – Before opening a Demat account you need to approach a DP. A depository participant can be a non-banking financial institution, a bank or a broker that has been authorised by the NSDL to handle demat accounts on their behalf.
  • Depository – NSDL is the Depository which is responsible for maintaining the demat account. While the DP has the authority to make transactions and update your demat account and acts as an intermediary between the depository and you (demat account owner), the depository holds the demat account in your behalf.

How to Choose the Best Demat Account?

If you are looking for the best demat account in India, here are a few pointers to help you move in the right direction. 

1. Simple Demat Account Opening Process

The first factor in choosing your demand account is Simplicity in process. Since demat accounts uses a digital method the entire demat account opening process should be carried out online. The procedure for opening a demat account with ICICI Direct and SAMCO is very simple and easy. 

Here’s how you can open your demat account:

  • Firstly, you need to choose the depository participant(DP) with whom you want to open your account.
  • Fill up the demat account opening form.
  • Fulfill the KYC details online.
  • Once you have submitted your demat account opening form along with the KYC documents, the next step is to get your documents verified.
  • Once this process is done, you will be given a unique beneficiary-owned identity number (BOID) in order to access your demat account.

2. Low Demat Account Charges

Nowadays, most DPs, banks and financial institutions do not charge customers for opening a demat account.

The charges are taken for the following:

  • Annual maintenance charge (AMC)
  • Transaction fees charged every time securities are debited from your demat account
  • Debit Instruction Slip (DIS) rejection charges.

Always opt for Demat account with zero AMC. Also if you are a first-time investor, there are attractive offers carried out by brokers, banks and financial institutions which you can take advantage of.

3. Easy to Access and Operate

Investing and trading should be a seamless process with your demat, trading and savings bank account. It is essential that linking between the demat, trading, and bank account is hassle-free and easy for smooth transactions. 

We hope that the information above clarifies how useful Demat accounts are. So, get started with opening a Demat account with ICICI Direct and SAMCO and enjoy its benefits.

Planning to invest in the stock market and earn profits?

Investing at a young age for a longer time will provide you high returns. Buying shares of a company means you are investing in a company. As the company will grow, then your share will also increase. When you sell these shares in the market you can earn profit. Share market does not always mean profit, sometimes losses are also seen. Wanted to learn about stock market in details and start investing refer the links below:

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