A demat account acts like a vault that holds financial instruments such as mutual funds, bonds, shares, etc. in electronic format.
It is essential to open a account with a registered depository participant to trade in India. However, you must be aware of its benefits to utilise demat services completely. Here are some key benefits of a demat account that you must know:
Secure online repository of securities
Demat allows you to hold your securities in dematerialised i.e. electronic form. Digital records are less likely to be misplaced or stolen if you compare it with physical securities. Therefore, you don’t have to worry about their safety.
Prevents fraudulent activities
Physical share certificates, bonds, and other securities can be misused or forged. However, there are minimum chances of forgery if you invest in these securities through a account. All the securities are available in paperless form but you can get them converted into physical certificates through a process called rematerialisation.
Transactions done via a demat account are much faster as you don’t need to follow an offline procedure for the same. You can buy stocks in real-time when their prices are favourable as per your research. Also, you may sell the stocks to make profit without wasting any time. Even transfer of shares from one demat account to another is possible. You need to fill a DIS (Delivery Instruction Slip) with all the essential details to transfer the shares seamlessly.
Loan on securities
The securities that you hold in your demat account can bail you out from a financial emergency. It is because banks and other financial entities provide loans against securities. You will continue receiving dividends, bonus issues, and other corporate benefits even if you have pledged the securities to get a loan.
Online tracking is easy
It is easy to keep a track of trading activities online. You can note down all the transactions made on a particular day or period by downloading the detailed account statement from your demat account. It reduces the efforts and allows you to completely focus on investing and trading.
A demat enables you to avoid extra charges like stamp duty, handling charges, etc. as all the process is carried out online. The only charge you must worry about is the brokerage and AMC (Annual Maintenance Charges). To encourage trading, many brokerage platforms offer minimal brokerage rates. The facility of free demat account opening is also offered by most trading platforms these days. Most platforms also waive off the AMC for the first year. The lesser brokerage allows you to earn more profits via trading.
Where to open a demat account?
Commercial banks, brokers, mutual fund houses, and other financial entities that have registered as a DP (Depository Participant) with CDSL or NSDL can provide you with a account. You can visit the official website of these providers, fill an online account opening form, and submit the necessary documents. You will be able to log into your demat after the successful verification of documents.
Which documents are required to open a demat account?
The following documents must be submitted to open a demat account:
- Couple of passport-sized photographs
- Electricity, water, or phone bill that carries your address
- Identity proofs such as Driving Licence, Passport, Aadhaar Card, Voter ID or any government-approved photo-id
- Pan Card Copy
- Form 16, salary slips, or detailed bank account statement to verify your income
- A cancelled cheque for verifying your bank details