All you need to know about Demat accounts
Since their introduction
in 1996, Demat accounts have become a must-have for any investor in India wanting
to buy stocks or bonds. It holds your share certificates and other securities
in electronic format. A Demat account is as important for stock investments as
savings accounts for banking.
A Demat account allows
you easy access to your funds and makes it easy to buy and sell stocks.
Moreover, it eliminates the risks involved with physical certificates.
Therefore, you will want to open a Demat account to start your investment journey.
Read along to know
more about Demat accounts.
What is a Demat Account?
A Demat account or Dematerialisation
account lets you store various securities in electronic format. You can use it
to hold all your investments, including stocks, bonds, mutual fund units,
government securities and ETF (Exchange Traded Fund), etc., in one place. Demat
accounts have made storing stocks entirely paperless and streamlined the share
trading process.
Before the
digitisation of the Indian stock market, shares were held in physical form. Trading
in physical shares was troublesome, taking several days for an investor to open
an account. Today, you can easily open a
Demat account in a few minutes to store/trade shares.
How do Demat Accounts Work?
All Demat accounts
in India are maintained by two Depositories- NSDL (National Securities
Depository Limited) and CSDL (Central Depository Services Limited). Depository
Participants (DPs)such as financial institutions, stockbroking firms, etc.,
offer Demat accounts to the public for holding stocks and other
securities.
Besides a Demat
account, you will need a trading account to hold money for trading and a bank
account for transferring funds. You can open a combined trading and Demat account with Arihant Capital for hassle-free
trading. When you need to buy or sell a particular stock, you need to log in to
this account and place a 'buy' or 'sell' request via your trading account.
The Depository
Participant forwards your request to the respective stock exchange, which helps
to find a corresponding buyer or seller. When the order price and quantity
match, it sends an order to clearance houses to debit or credit the shares to
your Demat account. This is how a single trade takes place via a Demat and
trading account.
Types of Demat Accounts in India
The following are
the main types of Demat accounts in India:
A. Regular Demat account: These Demat accounts are meant for investors residing in India. NSDL and CSDL provide regular depository services through DPs, intermediaries, and stockbrokers. Charges for these accounts depending on the type of securities, holding value, and the DP’s terms and conditions.
B.
Basic Services
Demat Account: Recently, SEBI has introduced a new type of Demat account called BSDA
(Basic Services Demat Account) to encourage the entry of new investors. This
offers nil maintenance charges for a holding value of below Rs. 50,000 and charges
a fee of Rs. 100 for a holding value of Rs. 50,000 to Rs. 2,00,000.
C.
Repatriable Demat account: Non-Resident
Indians (NRIs) can open a Demat account
of this type to invest in the Indian stock market. Once they become an NRI,
they must close their regular Demat account and transfer the securities to an
NRO (Non-Resident Ordinary) Demat account. Once done, they can open an NRE
(Non-Resident External) account to receive payments.
D. Non-repatriableDemat account: Non-residents can also open a non-repatriable Demat account to hold Indian stocks. However, this account does not allow investors to transfer funds abroad. Moreover, they need to link an associated NRO bank account.
Reasons for Opening a Demat Account
The following are
some reasons why you may want to open a
Demat account:
· Mandatory for trading Shares: SEBI (Securities and Exchange Board of India) has made it compulsory for everyone to have a Demat account to trade Indian securities.
· Near-instant trading: With Demat accounts, you can get online transactions processed almost instantly. Investors can also dematerialise their physical share certificates into the electronic form or rematerialise online securities into physical documents.
· High security: Storing shares in a Demat account is much safer compared to physical storage as there is little risk of loss, theft, and fake signatures. It stores all securities safely and securely in a digital repository.
· Easier to manage: You can access a Demat account anytime and anywhere from your mobile or laptop. It lets you track account activities and information regarding your investments. Moreover, you can get useful updates.
· No minimum balance requirement: There is no minimum balance or trading requirement with a Demat account. This works well for long-term investors and those who trade infrequently.
Final Word
You need to open a Demat account to start investing
in the Indian stock market. It is a much better alternative to trading with
physical share certificates as it offers better security and faster
transactions. Before choosing a DP for your Demat account, make sure to look at
its applicable charges, including account opening charges, maintenance fees,
transaction charges, etc.
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