The Demat account holds securities, e.g., shares, mutual funds, bonds, exchange-traded ETFs, etc, securely in digital form. You need two essential accounts, the Demat account for electronic holding of shares and the trading account for quick execution of buy and sell orders, to trade effectively on the stock market.
Read this article below and understand the importance of opening a demat account.
What is a Demat Account?
A demat or dematerialised account facilitates the storage of shares and securities electronically. In the online market, a Demat account is used for buying and holding shares to allow users to trade with each other easily. The Demat account contains all the investments made by an individual in equity and government securities, exchange-traded funds, bonds, or mutual funds in one place.
Demat has facilitated the digitisation of the Indian stock market and improved the governance of the Securities Exchange Board of India (SEBI). Moreover, by storing securities electronically, a demat account reduces the risk of storage, theft, damage, and malpractice. It was launched by the National Securities Exchange (NSE) in 1996. It was initially a manual process to open an account, and it took investors several days to get it up and running. In five minutes, you can open a demat account online.
Importance of Demat Account
The importance of a demat account is as follows.
1. The exchange of securities
The purpose of a demat account is to make the transfer of securities from one demat account to another as efficient as possible. As a result, price fluctuations occur every second, and there are millions of transactions going on at any one time in the rapidly digitising securities market. The purpose of a demat account is to minimise the time it would take for a successful transfer of securities. One of the numerous advantages of having a demat account is the speed at which the operation may be finished.
2. Unlimited Transfers
The transfer and trading of securities in the stock market used to be subject to rules and restrictions. With the help of recent technological developments, today’s digital depository accounts give investors virtually unlimited access to transfer their securities, meaning that they can buy or sell any number of securities according to what price and quantity they want without limits on such transfers in the past. The demat account also appears to be benefiting from this.
3. Security of funds
Another objective of a demat account is ensuring that the assets they hold are safe. The risks of losing shares and bonds or damage to certificates and the possibility of counterfeiting are eliminated due to their digital nature. Once a transfer has been completed, you will be registered as the sole owner of any securities you buy. The importance of the demat account is demonstrated by the fact that any irregularity in securities can be avoided.
4. Cost-effective
Besides the potential returns you can make on the market, demat accounts offer significant economic benefits. The first point is that by eliminating the paper trail, an extremely efficient process takes place for transfers of securities between demat accounts. Furthermore, the requirement of buying shares transfer stamps is also eliminated by this computerised method, and stamp duties are no longer required.
Need of Demat Account
An individual’s funds are held in a bank, just as shares and securities are stored in a demat account. It keeps the securities in a dematerialised or electronic form. If an investor wishes to trade securities on a delivery basis, he should have a demat account. A demat will not be required if the investor trades in futures and options. Nevertheless, it is mandatory to have a demat account for all commercial transactions to take place via the demat account.
The account also has much greater safety than physically issued share certificates or bank guarantees. It is not at risk of being lost or stolen. As long as it is online, you can access this account anywhere. A person can buy various shares, which was not possible with physical certificates, using a demat account. In addition, shareholders who own shares in demat format are eligible for the right issue, bonus, or dividends.
Conclusion
The investment in securities had been too long and cumbersome before demat, with a high volume of paperwork. Managing all the paper securities before 1996 took a lot of work. In addition, risk factors such as theft or physical damage have been associated with it. The dematerialisation has led to a more straightforward trading experience while reducing the time spent on it. In addition to that, it will improve safety and enhance security in securities purchases and sales. To open a hassle-free demat account, check out one of the best mobile trading app, Kotak Securities. ṁ