Investing is one of the best ways to grow your wealth. With more and more people understanding the importance of investments, there are now many options available. Among these options are shares and securities, and for these you need a demat account.
Before diving into the particulars of a demat account, it is crucial to understand why investing in shares is a good strategy. Simply put, these investments help you diversify your portfolio and generate wealth efficiently.
With proper investing, you can optimise to enjoy returns of one sector against the loss of another. Initially, the shares and securities were held in physical forms and were vulnerable to various risks, such as forgery, loss, misplacement, and more.
Given this, dematerialised, commonly known as demat, accounts were introduced in 1996 and made mandatory under the Depository Act 1996. To know what a demat account is, its types, features and more, read on.
What is a Demat Account?
In a demat account, the shares and securities you invest in are stored electronically. The introduction of dematerialisation facilitated online trading in shares and securities, making the process easy and convenient. Moreover, digital storage of shares significantly reduced the risk of holding physical certificates.
While the process initially took a couple of days, today, you can open a demat account online in a couple of minutes. Once you open the account online or offline, you can start investing and trading in shares and securities in the same way you transact/ manage a savings account.
When you buy, the investment will be credited, and upon selling it, it will get debited. It is important to note that for trading, you need to link your demat account to your trading account.
Remember that it can take a few days for the shares and securities to reflect in your account. A few of the top features of a demat account include:
- Safety and security of investment
- Instant execution of orders
- Stay updated with multiple ways to access it
- Easy holding and lower costs
Types of Demat Account
There are different types of demat accounts for resident and non-resident investors. Given below is a brief overview of these accounts:
Regular
As the same suggests, this is a regular demat that Indian residents can open and invest from. You can purchase and trade shares and securities through this account.
Repatriable
This demat account is designed for Indians living outside the country who want to transfer their earnings from the Indian stock market outside India. For this, having an NRE account is a key requirement.
Non-repatriable
This is another demat account designed for Indians living outside India. The difference between this and a repatriable account is that in this account, you can transfer funds abroad. Instead of an NRE account, you need an NRO account.
How to Open a Demat Account Online
Today, numerous financial institutions offer an entirely digital process of opening a demat account. With the simple, quick, and easy digital process, you can open an account in just a few minutes.
Outlined below are the general steps on how to open a demat account online:
- Visit the official website of the financial institution or DP
- Navigate to the demat account section
- Fill in the required information
- Upload the necessary documents, if required
You can check the Depository Participant (DP) list on the NSDL or CDSL website and compare the process of your preferred DPs to choose one that offers the most seamless process.
Benefits of Having a Demat Account
Given below are the top benefits you can enjoy with a demat account:
Reduced Risk
With a demat account, your investments in shares and securities are held in a digital form. This reduces the risk of loss due to theft, forgery, fire, or misplacement that you may incur while holding the certificates in a physical form.
Accepted as Collateral
Secured loans come with lower interest rates and are relatively easier to access. However, putting optimum collateral is a key requirement. Putting together this collateral can be stressful, especially in an emergency. However, since you can pledge your demat account as collateral, the stress eases.
Multiple Access Points
Digital storage means you can access your account from any device at any time. This enables you to get instant updates about your investments, facilitating quicker decisions that can help maximise returns.
Lower Cost
Holding your investment in shares and securities in physical form would require you to pay a hefty stamp duty charge. This ultimately reduces the return you earn from the investment.
In demat, you don’t need to pay the stamp duty charges as there are no physical certificates. This reduces your investment expense, allowing you to maximise your returns.
Now that you know what a demat account is, its types, and the way it benefits you, be sure to choose your broker and depository participant carefully. Once you have chosen between CDSL and NSDL, you can choose a financial institution that has partnered with your preferred DP.
After that, look at the account opening process, interface, reports, analysis, and other factors that can affect your trading experience. You also need to consider the charges and fees that the financial institutions levy to ensure that the expenses are minimal and returns are maximised.
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