If you want to start investing in the stock market, it is very important that you have a demat account. A lot of stockbrokers now allow you to open a demat account with them and start your stock market journeys. But what is a demat account and why is it important? To understand this properly, it is important to know the demat account full form.
The full form of Demat account is dematerialized account. The full form has a lot of association with the meaning of demat account as well.
But why is a demat account called a dematerialized account? Let us find the answer to this question in the upcoming section of the article.
Demat Account Meaning
A demat account or dematerialized account is an account that was introduced to hold your shares in a digital form or dematerialized form. This is where the word dematerialized account comes from.
Earlier when you invested in the stock market, you had to trade using paper shares. This made it difficult for the investors to keep a track of their shares. It was too much hustle and it also gave rise to a lot of fraudulent activities in the market.
There were high chances of losing the shares and also unethical practices. So in 1996, the stock market took a technologically advanced turn and with that, every physical share was dematerialized and stored in a digital form.
Just like you need to have a bank account in order to store your money, similarly, you need a demat account to hold your shares. If you are looking for a demat account opening, you can simply choose a stockbroker according to your needs and then start investing.
In addition to your demat account, there is also a trading account. So all the money transactions happen through your trading app and a demat account is only required to hold the shares.
So, whenever you are buying a share, the money is transferred from your bank account to your trading account. This is further used to purchase the shares. Once you have successfully bought the shares, they get reflected in your demat account.
SEBI has completely banned the use of paper shares and therefore a lot of scams have also failed. The demat accounts that you open through the various stockbrokers or depository participants are managed and regulated by the two depositories in India: NSDL and CDSL. They make sure that your demat account is secure and that there are no unethical activities.
There are various stockbrokers that have excellent services and allow the investors to enter the stock market smoothly. For example, you can absolutely open a free demat account with Choice.
If you are wondering, who can open a demat account? The answer is simple, almost everyone can open a demat account. You just have to fulfil some criteria if you are looking for a demat account service in India.
- Anyone who is a resident of India.
- A member of the HUF (Hindu Undivided Family) family.
- A minor below the age of 18 can also open a demat account.
- Non-Indian Residents (NRI) can also open a demat account in India.
You also need some valid documents when you want to open a demat account in India. The necessary documents required for demat account opening are as follows.
- Proof of Identity
- Address proof
- Bank details
- Income proof (if you want to activate the derivatives segment)
NOTE- Aadhar card and PAN card are two essential documents required for opening a Demat account.
Now that we have talked about the Demat account meaning let us move towards the various types of Demat accounts.
If you fulfill the eligibility criteria and have the valid documents handy, then you can open a demat account. There are various different demat accounts offered by the stockbrokers in India. Let us briefly talk about the same.
- Regular Demat Account- If you are a citizen of India and have valid documents, you can open a regular demat account. And the best part is that you don’t have to wait for your 18th Birthday to open your demat account. Although, all the trading has to be done by the parents or guardians in the case of a minor demat account.
- Repatriable Demat Account- Not only Indian citizens but NRIs can also open a demat account in India. If you are an NRI and want to open a repatriable demat account, you need to link your NRE bank account to your demat account. In this way, you can transfer funds across the globe. If you open a repatriable demat account, you have to follow the rules of FEMA,that is, the Foreign Exchange Management Act.
- Non-Repatriable Demat Account- This is also an NRI account and the only difference between the repatriable and a non-repatriable demat account is the transfer of funds. If you have a non-repatriable demat account, you can link your NRO account. But with this account you cannot transfer funds abroad.
These are the various types of Demat Account that you can open in India. Since we know that it is mandatory to open a demat account to start your stock market journey, let us have a look at the benefits of a demat account.
Benefits of a Demat Account
With the very onset of demat account in 1996, the share market has undoubtedly become a much safer place. The regulatory bodies can also function in a proper hierarchy and with great control now.
Since it is a necessity now, there are various benefits associated with the same. Let us look at some of the benefits of demat account.
- Safety- The major purpose of demat account was to provide safety to the individuals trading in the stock market. So, with the introduction of demat account, safety has become very convenient. Earlier, the shares were kept in a physical or paper format which possessed a lot of problems to the people in cases or theft or misplacement of the shares.
With the introduction of demat account, it has become easier to keep the shares and there are no chances of misplacement. The two depositories, NSDL and CDSL can also regulate the Demat account in a proper way.
- Easy Management- Demat account has also made it easier for the investors to track their transactions. They can easily watch the shares that they buy and also the profit and loss on their entire portfolio.
- Convenient Transactions- In earlier times when an investor had to buy and sell shares in the stock market, he/she had to personally go and do it. In addition to this, the transaction was completed in a few days.
Now, with the introduction of demat account, the entire transactions can happen within a span of seconds and from the comfort of your space.
- Loan Facilities- If you want to trade but do not have the capital to spend, you can easily pledge your current holdings. This means that keeping your existing shares as collateral and getting some money from the broker. This allows you to trade and make profits even when you run out of captial.
- Easier to receive bonus splits- There are a lot of companies that split their shares. This means that if you have a single share of a company and they split their shares in the ratio of 1:2, then you will have 2 shares. With the advent of demat account, it has become easier to receive any bonus shares or the shares after the stock split.
With these benefits included demat account has not only become a necessity but also an asset to the stock market world.
Demat account refers to dematerialization and it also has significance in the meaning of a Demat account. This is simply a place where you can store your shares in a dematerialized or electronic format to protect your investments from any fraudulent activities.
If you are entering the stock market, it is not only important to choose the right stocks for maximum benefits but also essential to open a Demat account with the right stockbroker.
Want to start investing in the share market, open a Demat account with Choice today!