A demat account is an account used to hold shares and securities in electronic form. The full form of a demat account is a dematerialised account. The purpose of opening a demat account is to hold shares that have been purchased or dematerialized (converted from physical to electronic shares), thus making it easier for users to trade shares during online trading.
In India, depositories like NSDL and CDSL provide free demat account services. These services are offered by middlemen, depository participants or stockbrokers such as Angel One, Upstocks. Each arbitrator may have demat account charges that may vary according to the amount held in the account, the type of membership and the terms and conditions between the depository and the stockbroker.
What is a Demat Account :-
A demat account or dematerialized account facilitates holding of shares and securities in electronic format. During online trading, shares are purchased and held in a demat account, thus, facilitating easy trade for users. A demat account holds all investments in shares, government securities, exchange-traded funds, bonds and mutual funds at one place.
DEMIT enabled the digitisation process of the Indian stock market and implemented better governance by SEBI. In addition, the demat account reduced the risk of storage, theft, damage, and misconduct by storing securities in an electronic format. It was first introduced by the NSE in 1996. Initially, the account opening process was manual, and it took investors several days to activate it. Today, an individual can open an online demat account in 5 minutes. The end-to-end digital process has contributed to the popularisation of Demat, which is skyrocketing in the pandemic.
Types of Demat Account :-
Regular Demat Account: Regular Demat account is meant for resident Indian investors who want to trade in equities alone and require storing of securities. When you sell, stocks get debited from your demat account and credits when you make purchases during trading. If you are trading in F&O, you do not need a demat account as these contracts do not need to be stored.
Basic Services Demat Account: This is a new type of demat account launched by Sebi. If the holding value is less than Rs 50,000, there is no change in the maintenance of these accounts. Between Rs 50,000 to Rs 2 lakh, the conversion is Rs 100. The new type of account targets new investors who have not yet opened a demat account.
Repatriable Demat Account: Non - Resident Indian investors open a repatriable account to transfer their earnings from the Indian market abroad. If you want to open a repatriable account, you have to close your regular demat account in India and open a non-resident external account to receive payments.
Non-Repatriable Account: This account is also open to Non-Resident Indians (NRIs) but does not allow transfer of money to foreign locations.
Importance of demat account
With the help of a demat account, you can invest in a variety of instruments such as bonds, equity shares, government securities, mutual funds and exchange traded funds (ETFs). Like a bank account, every time you buy or sell shares of a company, the demat account is either credited or debited.
It not only eliminates unnecessary paperwork but also helps in streamlining the process of share trading. All demat accounts in India are created by two depository i. e. National Securities Depository Limited (NSDL) and Central Depository Services Limited.
How to open a demat account?
- Select a Depository Participant (DP)।
- Fill in and submit the form for opening a demat account.
- Fill in all the required KYC requirements and submit the paperwork.
- Follow the verification process and sign a contract with your DP.
- Once the application is verified and approved by the concerned authorities, you will get a beneficiary owner identification number.
Steps to open a trading account -
- After comparing brokerage rates and services provided, select a trusted stock broker or firm.
- Fill in the account opening form duly and submit and complete the KYC process.
- Submit all necessary identification, address and bank account proof.
- Your application will be verified and approved, after which you will get the trading account details.
- You can immediately start ordering the purchase or sale.
Related Post - GST Budget : Finance minister has announced on Friday new GST Budget, Check Details. | TechstudiZ
What is Pblic Provident Fund(PPF) Account, And its Benefits. | TechstudiZ