A demat account is essential for investing in the stock market. It stores your securities in an electronic or dematerialisation format, simplifying the process of investing in various financial instruments. Here’s more about a share market demat account and its key features.
What is a Demat Account and What is the Use of It?
A demat account works similarly to a bank account. While a bank account has your money, a demat account holds your securities, such as stocks, exchange-traded funds, and bonds, in electronic form.
Sebi’s diktat now requires individuals who want to invest in the Indian securities market to open demat accounts. Introduced in 1996, demat accounts were once difficult to set up, but digitalisation has streamlined the process, making it quick and hassle-free.
How to Open a Demat Account?
You can now open an online demat account in just a few minutes. Online demat account opening is convenient and only requires basic identity and address documents. Here’s how to open a demat account:
- Choose a depository participant to open your account
- Complete the online account opening form
- Provide your bank details
- Upload identity and address proof documents
- Complete in-person verification by recording a short video
- E-sign using your Aadhaar-linked mobile number
- Submit the form
If all the documents are in order, a demat account typically gets opened within 2 to 3 working days. Once you receive the notification, review your account details for any discrepancies. Your demat login credentials will be sent to your email, and a hard copy will follow to your registered address in a few days.
Choose the best trading app in India as a A trading app simplifies investing by providing real-time market data, streamlined transactions, and user-friendly tools for managing and tracking investments.
Types of Demat Account
Demat accounts are of three types. These are:
-
Regular Demat Account
A regular demat account is for Indian citizens. If you are an Indian national planning to invest in the stock market, you will need to open this type of account.
-
Repatriable Demat Account
This demat account is for non-resident Indians (NRIs) who want to invest in the Indian stock market. It allows NRIs to transfer funds to foreign countries. However, the repatriable demat account must be linked to a non-resident external (NRE) bank account. This flexibility is beneficial for those who want to access and utilise their funds internationally.
-
Non-repatriable Demat Account
A non-repatriable demat account is also designed for NRIs, but there is a key difference. Unlike a repatriable demat account, where funds can be transferred abroad, a non-repatriable demat account does not allow for such fund transfers. This means that any money earned from the investments, such as dividends or capital gains, must remain within India.
Benefits of Demat Account Investment
Having a demat account comes with several advantages. Some of the main benefits include:
-
Secured Storage
One major benefit of having a demat account is secured storage. It digitally holds your securities in a secure electronic format, reducing the risk of loss, theft, or damage associated with physical certificates. This ensures that your investments are safely managed and easily accessible, providing peace of mind and convenience.
-
Eases Trading
Previously, buying and selling stocks required physical certificates, which meant handling a lot of paperwork. With a demat account, all your securities are held electronically. This eliminates the need for physical certificates and the hassle of managing them. Transactions are processed much faster with a demat account.
-
Easy Access and Management
You can easily access your portfolio online, anytime and from anywhere. This accessibility helps you keep track of your investments and manage them more effectively.
-
Cost-efficient
Holding securities in a demat account can reduce costs associated with stamp duty and other charges related to physical shares. This makes managing your investments more economical.
-
Automatic Updates
Corporate actions such as dividends, bonus shares, and rights issues are automatically credited to your demat account. This ensures you don’t miss out on any benefits.
-
Ease of Transferring Securities
Transferring securities between accounts or to other individuals is straightforward with a demat account. The process is quick and seamless compared to traditional methods.
-
Gateway to Diversified Financial Investments
A demat account is not just for holding shares electronically; it also serves as a versatile tool for investing in various financial instruments like exchange-traded funds, bonds, and more. Essentially, your demat account provides a streamlined way to diversify your investments according to your financial goals and risk tolerance.
-
Facilitates Loan Against Securities
If you need funds for any purpose, you can leverage the securities you hold in your demat account to secure a loan. By using your securities as collateral, you can access the financial resources you need while keeping your investments intact. This option provides a flexible solution, allowing you to unlock the value of your assets without having to sell them.
Conclusion
No matter if you’re into options trading, intraday trading, or regular trading, having a demat account is essential. That said, investing in stock markets also requires having a trading account. A demat account electronically stores your securities, while a trading account lets you buy and sell them. Make sure to review different depository participants for their fees and service quality before opening demat account and trading account.
With HDFC SKY, opening a demat account is straightforward. With us, you can invest in stocks from over 3,500 listed companies and more than 100 ETFs. HDFC SKY’s demat account also supports seamless trading in futures, options, commodities, and currencies. Click here to learn more.
Frequently Asked Questions
-
What is Dematerialisation?
Dematerialisation is the process of converting physical share certificates into electronic form. This allows shares and other securities to be held in a digital format rather than as physical documents. The electronic version of the securities is stored in a demat account.
-
Do We Need a Demat Account for Mutual Funds?
No, you do not need a demat account to invest in mutual funds. Mutual funds can be purchased directly through the asset management company’s website or through various investment platforms. However, if you intend to invest in exchange-traded funds, you need a demat account.
-
How Much Do You Pay for a Demat Account?
The cost of opening a demat account can vary depending on the service provider. The two primary charges are account opening charges and annual maintenance charges. Transaction fees, pledging charges, etc., are the various other expenses you are likely to encounter.
-
How to Know All the Information About Holding a Demat Account?
To gather comprehensive information about holding a demat account, you can visit the official website of NSDL or CDSL or your brokerage firm. Review their detailed FAQs, account opening guides, and terms & conditions. Additionally, consult customer service for personalised assistance and clarifications.
