DEMAT TRADING ACCOUNT

"Invest the smart way"

What is Demat Trading account ?

A Demat Account is a bit like a bank account for your share certificates and other securities that are held in an electronic format. Demat Account is short for dematerialisation account and makes the process of holding investments like shares, bonds, government securities, Mutual Funds, Insurance and ETFs easier, doing away the hassles of physical handling and maintenance of paper shares and related documents.

To understand Demat Account meaning, let’s use an example. Let’s say you want to purchase the shares of Company X. When you buy those shares, they will have to be transferred in your name. In earlier times, you got physical shares certificates from the exchange with your name on it. This, as you can imagine, involved tonnes of paperwork. Each time a share was bought and sold, a certificate had to be created. To do away with this paperwork, India introduced the Demat Account system in 1996 for trades on NSE.

Types of Demat Accounts

Now that we’ve understood Demat Account definition let’s look at the types of Demat Account. There are mainly three types:

  • Regular Demat Account: This is for Indian citizens who reside in the country.
  • Repatriable Demat Account: This kind of Demat Account is for non-resident Indians (NRIs), which enables money to be transferred abroad. However, this type of Demat Account needs to be linked to a NRE bank account.
  • Non-Repatriable Demat Account: This again is for the NRIs, but with this type of Demat Account, fund transfer abroad is not possible. Also, it has to be linked to an NRO bank account.

What are the benefits of the Demat Trading account?

Technology has made the world smaller in many ways. It is also convenient and safe when it comes to investing in the stock market today. Dematerialized accounts or Demat Accounts were introduced for easy handling & maintenance of shares and other such holdings. However with time, it kept on adding to the ease of trading and holding investments.

  • A Demat Account can give quick & easy access to your investments and statements through net banking. Also, these details can be available to you anywhere – computer, smartphone or any other smart device.
  • If an investor holds certificates in physical form, he/she only needs to give instructions to the depository participant (DP) to convert it in an electronic form. Similarly, certificates in electronic form can be converted into physical form on request, if needed.
  • Receiving Stock Dividends & Benefits

Demat Accounts have replaced the time-consuming process with quick & easy methods to receive dividends, interest or refunds. It is all auto-credited in the account. It is also extremely convenient when it comes to updating investors’ accounts with stock splits, bonus issues, rights, public issues, etc. through electronic clearing service (ECS).

  • Easy Shares Transfer

Transfer of shares on buying or selling have also become much easier. Earlier physical transfer of shares would take about 1 month time or so. With this process simplified, costs have also come down. There is no stamp duty on transfer of securities held in the electronic form.

  • Liquidity of Shares

Demat Accounts have made it simpler, faster and convenient to get money on selling shares.

  • Loan Against Securities

As a Demat Account holder, you can avail a loan against the securities held in your Demat Account.

  • Freezing Demat Account

Specific type or quantity of securities in a Demat Account can be frozen by the Demat Account holder. He/she can also choose to freeze the Demat Account for a certain period of time. This will stop the transfer of money of any Debit or Credit Cards into the particular Demat Account.

  • Globalizing India

Demat Accounts have played a significant part in giving foreign investors an easy access to the Indian stock market. And rise in foreign money in the stock market has helped the overall Indian economy in turn.