A demat account is one of the most important tools you need as a share market investor. This account offered by Depository Participants (DPs), in association with the chief depositories in India; the National Securities Depository Limited (NDSL) and Central Depository Services Limited (CDSL); allows you to easily manage all your share market instruments. There are several benefits of dematerialisation that investors can reap upon opening this account. But what exactly is this account – how is demat defined and what are those advantages? Read on.
Demat account definition
Demat is short for dematerialisation i.e. converting your physical share market investment securities into electronic securities. Earlier, when one would buy shares, the company would allot physical share certificates. If one wished to redeem the shares, one had to provide those physical certificates to liquidate their investments. But in 1996, the SEBI eliminated this time consuming process and replaced it with demat through which market investments can be traded electronically. The demat account allows you as an account holder to buy and sell market instruments at the click of a few buttons, on a safe and secure, electronic platform, without you ever having to worry about elaborate paperwork formalities.
7 advantages of holding demat accounts
- You can easily trade in equities
In accordance with SEBI regulations, you cannot transfer your securities unless you hold them in the dematerialised form. As such, in order to conduct your stock market trades, you need to open a demat account. You need to convert all stocks you own in paper form to demat form so that you can easily trade in equities.
- You can hold all kinds of market instruments in demat accounts
The demat account holds more than just your shares. You can even hold your mutual funds, government bonds, exchange traded funds and all other types of money market instruments in this account in a safe and secure manner.
- You can transfer your shares easily
Transferring shares from one account to another is made easy, through demat account. Your market holdings can be easily transferred by filing a basic form known as a delivery/receipt instruction slip. Just fill up the demat account information, the name and code of securities and the number of units you want to transfer.
- Securities are dematerialised faster and trades can be conducted swiftly
You can convert your physical shares into dematerialised format at a quicker pace. Just instruct your DP to do the same. Also, transactions through your demat account can be performed swiftly since the chief depository bodies; the NDSL and CDSL allow account holders to send instruction slips to their DPs easily.
- You can easily track your investment portfolio
With demat accounts; you can easily track the performance of all the market instruments you’ve invested in. You can get regular research reports with detailed analysis to help you make informed investment decisions.
- You can avail loans
A few DPs in India also allow you to pledge the securities held in the demat accounts to avail loans. The instruments held in the demat account can serve as collateral, against which you can avail a personal loan.
- Corporate benefits are directly transferred
In case you are provided with corporate benefits from your holdings, such as dividends, bonus issues, interest, refunds, etc.; then these benefits are directly transferred into your demat account.
Final word: Now that you know what is dematerialisation and its benefits, you should consider opening your first demat account. Remember to choose a good DP, offering detailed research reports and financial advisory services to make the most of your investments.
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