What are the Benefits of Demat Account?
24 Aug 2023
Table of Content
In 1997, the Indian stock exchanges transitioned to using Demat accounts. Before this, stock and share transactions had to be recorded on paper and completed in person using actual stock certificates.
Today, anyone can purchase and sell shares of stock and other items electronically using a Demat account , eliminating the need for bureaucracy and documentation.
A person's portfolio of financial assets, including stocks, ETFs, bonds, and mutual funds, may be kept in one convenient location, thanks to a Demat (short for 'Dematerialisation') account. Opening a Demat account is the first and foremost necessity for anybody interested in investing or trading in stock markets. With Demat accounts, share trading has become a simple, safe, and quick procedure.
This article discusses the function, benefits, and features of a Demat account along with why one needs a demat account.
Features of Demat Account
Now that one has a fair idea of what is a demat account, it's time to look at some key features highlighting the importance of Demat accounts:
- Quick Access: A Demat account provides convenient access to all the investments and statements through net banking, ensuring easy tracking and management.
- Hassle-free Dematerialization: With the assistance of a depository participant (DP), physical share certificates can be converted into electronic form and vice versa, making the process of dematerialization seamless.
- Effortless Share Transfers: Transfer of shares has become significantly easier and time-saving with the utilization of Demat accounts, eliminating the need for physical paperwork and delays.
- Enhanced Liquidity: Demat accounts have simplified the process of selling shares, making it faster and more convenient to convert shares into cash, thereby improving liquidity.
Benefits of Demat Account
The following are some of the advantages of creating a Demat account:
1. No Paper Certificates
Shares were first issued on paper, but with the advent of Demat accounts, they are now digitally represented and traded electronically. Investors who had already acquired shares were saddled with several certificates representing those shares. There was a high risk of these copies being lost or damaged, and the transfer processes were time-consuming. The introduction of Demat account computerised the entire process, saving a ton of time and effort.
2. Easy to Put Away
There is no limit to the number of shares that can be held in a Demat account. Investors can monitor your stock holdings and execute large trades with ease. Demat accounts can also be used for the speedy transfer of shares.
3. Easy Access
Simply using a mobile device or computer, anyone can view and handle their portfolio whenever and wherever they choose. Investing for long-term financial stability is now simpler and more accessible than ever before with the help of a Demat account.
The ability to nominate a beneficiary is another perk of a Demat account. Nominations must be made by the procedures established by the depository. In the event of the investor's death, the shares in the account will be transferred to the beneficiary.
5. International Transactions
Earlier, it would have been difficult for NRIs to trade in Indian stock exchanges. However, given the different Demat account types available, this is now possible. NRIs can opt for repatriable or non-repatriable Demat account types and buy or sell stock in NSE or BSE as they want.
Why Does One Need a Demat Account?
Bonds, stock shares, treasury bills, mutual funds , and ETFs are just some of the many investment options available through a Demat account. When one purchases or sells the stock of a firm, the appropriate amount is credited to or debited from their Demat account, which functions similarly to a banking account.
This system helps simplify the share-trading process by disposing of tedious paperwork that is not essential. National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are the two depositories responsible for monitoring all Demat accounts in India.
Tips to Choose the Best Demat Account for You
1. Verify if the monthly account fees are reasonable
There is an annual fee for keeping a Demat account open, regardless of the number of trades performed. Therefore, it's important to compare the costs of several Demat accounts before opening one.
2. Inquire about how to set up an account
The DP should make it easy and quick to create a Demat account. According to SEBI regulations, establishing a Demat account is a multi-step procedure. Using e-KYC, the DP may streamline the process.
3. Connect banking and Demat accounts
To facilitate the smooth movement of funds during the sale and purchase of shares and securities, DPs provide Demat accounts that double as trading accounts. Connecting the two accounts streamlines financial dealings and reduces costs.
4. Get personalized Demat account metrics from the DP
Earnings can be boosted using online analytics that can be tailored to the investor's specific shares, security, and investing preferences. When searching for the best Demat account, prioritize such features.
You may judge the DP's dedication to their customers by looking for indicators like a faster turnaround time (TAT) for share dematerialization.
Must Read - How to Open Demat Account Online in Easy Steps
Why choose Bank of Baroda's 3-in-1 Demat & Trading account?
One of the most popular Demat platforms for trading stocks online is Bank of Baroda's Demat facility. Demat accounts have been provided by Indian banks since 1996. Bank of Baroda was founded in Gujarat, India, more than a century ago, and it has been expanding ever since. Today, it ranks as India's third-largest public sector bank. Around 10,000 domestic and international branches make up the bank's global footprint. This makes the bank a global financial institution.
One can open a Demat account with the Bank of Baroda and deposit electronic copies of their certificates in the account. All deals involving monetary instruments are digitally and electronically processed over the internet. Among the various Demat account types, a 3-in-1 demat account type is unique because it combines the functionalities of Demat, trading and savings accounts .
FAQs on Benefits of Demat Account
Q. Can I open a Demat account without opening a trading account?
An individual can have a Demat account even if they do not wish to open a trading account. However, if you do not have access to an online broking account or a Demat account, you will be limited to making IPO investments and will not be able to purchase or sell shares through the stock market.
Q. Is the Demat account part of a 3-in-1 account?
A '3-in-1' Demat account combines the features of a 'Demat account' and a 'trading account' to make it easier for traders to buy and sell stocks and keep track of their funds (savings account). The Demat portion of a 3-in-1 account must be associated with either CDSL or NSDL, the country's two national depositories.
Q. What is the minimum balance for a Demat account?
The minimum deposit required to start a Demat account ranges from zero rupees to five hundred, depending on the DP you choose.
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Demat Account vs Trading Account: Key Differences
Most investors often come across the terms ‘Demat account’ and ‘Trading account’ and use them interchangeably. These accounts are essential for participating in share trading and investments and are considered largely similar. However, they serve different purposes. Understanding the difference between demat and trading accounts is crucial for investors to effectively manage their securities. Let us understand the difference between demat and trading accounts and determine their purposes.
How To Open Demat Account?
A Demat account (Dematerialised account) is necessary to be able to trade or invest in stocks online. Demat accounts hold the securities and other assets traded on stock markets.