Demat Account: Introduction

The facility of Dematerialised account, abbreviated as a demat account, is provided by national depositories – the NSDL and the CDSL through their registered agents known as the Depository Participants (DPs). 

A demat account is an online account to store the securities electronically that you own in the stock market. You can open a trading account online along with a demat account by submitting a demat cum trading account opening application.

Demat account makes the entire procedure of stock investing, holding, and monitoring more convenient, swift, and cost-efficient with its following features and benefits. 

Features and Benefits

  • Secured Depository

A demat account acts as an online repository. It is a secure account to store the financial Securities of the account holder. Every debit or credit of shares and other securities are monitored by SEBI authorized central depositories – the NSDL (National Securities Depository Limited) and the CDSL (Central Depository Services Ltd). 

  • Faster Investing Process 

A demat account facilitates the fast transfer of stakes. The dematerialization system came into existence in the late 19th century. Prior to dematerialization, investors had to deal with securities in physical format when stock exchanges followed the “T+5 days” settlement system. Investors had to visit the stockbrokers to trade in the market, which was a hindrance to the smooth flow of securities. Such hindrance has been eliminated by the online trading system based on demat accounts. Recently SEBI has further shortened the trade settlement duration to T+1 days. It’s the choice of a stock exchange to opt for this quicker settlement process.

  • Dematerialization of Securities

Demat account facilities include the conversion of paper-based shares to electronic format. However, now no company issues paper-based securities. Still, there may be many individuals holding old paper-based securities as an heir or nominee. They can convert those securities in the electronic form to trade them further.

  • Multiple Holdings 

To invest in the stock market, investors can create a well-diversified portfolio with multiple securities like bonds, derivatives, equities, exchange-traded funds, government securities, mutual funds units, etc. They can open a trading account online with a demat account to further buy and sell all these securities. To hold all these securities, an investor need not open multiple demat accounts. A single account is enough. If you feel the need for multiple demat accounts, you can go ahead.

  • Hold Securities Regardless of Investment Duration

The stock market offers plenty of securities that can be utilized to make significant returns in different time frames. You can hold your bonds, stocks, government securities, and other securities as per your requirement. You can easily debit or credit securities whenever you need to make profits. Your demat account is managed by your DP or stockbroker against Account maintenance charges.

  • Freezing Facility

Whenever you want to take a gap from trading or have an occasion where you need to give all your time, you can opt for freezing of your demat account till your unavailability. It is a smart step to keep your demat account safe in your absence.

  • Receive all your Corporate benefits

A demat account facilitates investors to receive the benefits from corporate actions. Whether it’s stock split, right shares, IPO refunds, bonus issues, your demat account will receive all benefits online even if you have frozen your account. 

  • Pledge Creation 

If you are an intraday trader or trade in the F&O segment, you can utilize the securities available in your demat account to create a margin pledge. It will collateralize your securities to obtain funds from your broker under the margin trading facility. The broker will charge a pledging/unpledging fee for its demat services. 

This way, an online demat account benefits you. To open a trading account online and demat account, you need to upload the following documents while submitting your online application:

  • PAN card
  • Income Proof 
  • ID proof 
  • Address Proof 
  • A canceled cheque 
  • Passport size photo 
  • e-Signature with white background

Your DP/broker will verify your documents and provide you your demat account number and login details.