What is a Demat Account: Everything You Need to Know About It
Most of you have a bank account. All of us mostly do. It provides us with the option to store our funds safely, along with the option to use them conveniently. Similarly, the dematerialized or Demat accounts store the shares and securities in electronic form. Their introduction aimed to enhance the share market’s working and increase safety.
Now it has become a prerequisite for investing in the share market. The shares the investors buy or sell remain in the Demat account. The advent of Demat accounts has made transactions more convenient and faster.
What is Dematerialisation?
Converting the physical certificates of shares and other securities is dematerialization. Before the introduction of the Demat account, everything was manual. The process of issuing certificates was a time-consuming affair apart from being troublesome. After opening a Demat account, one can get all these certificates digitally. All the information about these will be easily available in the Demat account. One must submit all physical certificates and a dematerialization request form (DRF). Mention on each of the certificates ‘surrendered for dematerialization’. You will get the acknowledgment slip after ‘surrendering the physical certificates.
Importance and Benefits of a Demat Account
A Demat account provides you with a digitally secured means of holding shares and securities, acting as a safe vault. It thus carries the following advantages.
1. As everything is in electronic form stored in a secure digital environment, there is almost no risk of theft and misuse. Physical certificates always have the risk of getting damaged, lost, and even forgery too. Also, manual work involving pen and paperwork led to errors. All these drawbacks were reduced significantly with the use of Demat accounts.
2. The most crucial benefit that the Demat account brought was giving a convenient storage facility of securities to the investors. Investors can store a huge amount of shares as per their needs. It allows them to trade large volumes of assets. Further, the transfer of shares is also quite hassle-free and swift.
3. The traditional use of paper carried a few extra costs. The expenses for stamp duty or handling charges raised the costs of entire transactions. All these additional costs were reduced with a Demat account, benefiting the investors.
4. Since all the information is stored digitally, one can easily access it online. Through a computer or even a smartphone, you can browse and maintain all of it from anywhere and anytime. You can even freeze your Demat account online whenever you want in any suspicious transactions.
5. Having a Demat account lets you find all the updates related to your transactions and even the stock market in real-time. It helps in assessing stock performances easily and quickly. In events such as a stock split bonus, you automatically get updated and receive your due share of benefits.
6. Nomination is compulsory in most financial transactions. The Demat account provides easy online facilities to nominate the person who will receive the funds in case of the untimely death of an investor.
7. The Demat account facilitates holding multiple kinds of assets. So investors have the freedom to invest in various kinds of assets apart from stocks like mutual funds, exchange-traded funds, government securities, etc.
Process of Opening a Demat Account
Open Demat account online requires contacting a financial institution providing the facilities with the market regulators’ permission. The entire process will involve the following steps.
- Complete the account opening form in all respects and submit it to the institution you chose.
- Provide all the required details like your name, date of birth, email id, pan number, phone number, etc.
- Submit all the details regarding your bank account.
- Complete the KYC documents by submitting the proof of identity and address.
- You may require an in-person verification also. If your broker asks for it, then visit their nearest branch.
- Additionally, provide the Aadhar details and verify your mobile number.
After completing the above steps, you will get the login credentials upon verification of all your documents.
Demat Account Charges
There are a few types of charges of a Demat account that you need to be aware of. Most institutions generally don’t levy opening account charges. A very few may do, so get it confirmed in the beginning. There are annual maintenance charges that you need to pay annually. Also, there are delivery charges, dematerialization and rematerialization charges, call and trade charges, etc.
So before you choose your broker or depository participants in technical terms, make sure you know all the charges properly. Reputed institutions like Kotak Securities provide all the details upfront and have a very transparent mechanism in place. You can contact them at their branches or online portals to acquire all the relevant details.