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What Is A Demat Account? Meaning, Features & Benefits

If you have started investing (or even just are reading up about investing!), you must have come across the term ‘demat account’.

Today, we thought we’d share some important things about demat accounts that young investors absolutely need to know about! Let’s get right to it!.

What is a demat account?

A dematerialization account, more commonly known as a demat account, eliminates the need for physical handling of shares, bonds, mutual funds, stocks, or securities, by instead holding them all in one electronic account. This means all your investment assets can be handled through a demat account, that will electronically hold your assets and update you on their status – just like a savings account – but for your investments.

Trivia: Before 1996 all shares and securities were issued physically and traded in the stock market. SEBI introduced the dematerialization concept 27 years ago, so anyone with access to the internet was able to buy or sell all forms of assets using their single demat account.

It is important to note that you can choose to trade in shares and securities or make mutual fund investments using traditional means as well, and you do not need a demat account for the same. But, should you opt to do so digitally (which is just more convenient!) – you must have a demat account.

Features of a Demat Account

Now that we understand the basic meaning of demat accounts, let’s take a look at some of its key features –

Electronic Storage – Of course, being an entirely electronic storage for your investments is one of the key features of demat accounts. These accounts are put in place to eliminate the need for physically having to issue, trade, reissue, or reinvest in shares, stocks, and securities. So now, instead of waiting for hours to be able to trade or invest, you can do so with a few clicks on your smartphones or computers – all you need is the internet!
Ownership Proof – The need to prove you own your investments might not arise often – but when it does, a demat account is a perfect ledger to show all your holdings. Since it is legal proof that you own your investments, a demat account makes trading and investing that much easier – consolidating your trades for you to track with ease.
Freezing – As an investor who owns a demat account, you have the power to freeze your account at any time you want. So, in the unfortunate event that someone is making unauthorized debits to your account, you can freeze its function and safeguard your investments.
Secure – Demat accounts are extremely secure. Accessing your demat account could require a password, or a two-step verification (or both!), which means that as long as your personal information is kept personal – your money is safe, and your investments are growing.

Here are some of the best demat accounts in India today –

Axis Direct Demat Account
SBICAP Securities Demat Account
HDFC Securities Demat Account
ICICI Direct Demat Account
Kotak Securities Demat Account

Most of these demat accounts in India will equip users with the general features that are associated with electronic holdings. Using a demat account can therefore be extremely beneficial for the smart investor!

Benefits of Demat Accounts

Here are some benefits that you can experience if you are using a demat account for your investments –

Ease of Access – Whether you are using a smartphone, a laptop, a tablet, or a desktop – you can access your demat account from anywhere, easily. This means investing in new funds or securities can be done just as easily as transferring existing funds, making a demat account your one-stop shop for all your trading transactions.
Lower Risk – Digitization eliminates the room for human error, which poses a risk when physically trading in shares or making investments. Investing using a demat account means you no longer have to worry about the possibility of mishandling documents, or thefts since everything is being done digitally.
Reduced Cost – When you are physically trading shares or investing, you will often incur charges like stamp duty, courier charges, handling fees, etc. All these supporting costs can be removed from the equation when you are using a demat account, which means you are saving some money in the process of going electronic!
Time-Efficiency – We’ll take two taps on a screen over hours in a queue any day – and we’re sure you would too! This is what a demat account accomplishes. You save a lot of time by making investments and trading stocks digitally, and you can then use that time for better objectives – like investing more!
Odd Lots – Before dematerialization was introduced, there were limits to the volume of stock that could be traded. These stocks, under 100 shares, were called odd lots, and trading was easier to do for odd lots. However, demat accounts are able to seamlessly handle larger volumes of trade, giving investors a wider scope for earnings.

The benefits of using a demat account are overwhelming – and these benefits are important to a lot of investors, especially the ones who are trading large sums of capital.

Opening a Demat Account

The process of opening a demat account in India has been streamlined to make it as efficient as possible. It can be condensed into a few simple steps –

Choose your demat account.
Submit an application form with required supporting documents (like PAN and Aadhar, for example).
Complete your KYC verification.
Agree to the boilerplate Terms and Conditions.

In four simple (and one-time) steps, you can receive your account details and start trading through your demat account.

Keep in mind that anyone who wants to invest in the Indian stock market or hold securities in electronic form needs a demat account. Whether you’re a long-term investor or a short-term trader, a demat account is essential for participating in India’s capital markets.

FAQs

How to open a demat account in India?

The process of opening a demat account can be condensed into a few simple steps – Choose your demat account → Submit an application form with required supporting documents (like PAN and Aadhar, for example) → Complete your KYC verification → Agree to the boilerplate Terms and Conditions.

Can I open a demat account online?

Yes. You can opt to go through a brokerage firm and create your demat account online.

How to close a demat account in India?

You will be required to fill out an account closure form and complete all compliance formalities to close a demat account in India.

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