A Demat account, short for dematerialized account, is an electronic account that is used to hold and trade securities in electronic form. Dematerialization is the process by which physical share certificates are converted into electronic form. Dematerialization of securities was introduced in India in 1996, and it has since become the preferred mode of holding securities for investors.
In this post, we will explore what a Demat account is, its features, benefits, and the process of opening one.
What is a Demat Account?
A Demat account is an electronic account that holds securities in electronic form. It is similar to a bank account, where cash is held in electronic form. In a Demat account, securities such as shares, mutual funds, bonds, and other financial instruments are held in electronic form.
A Demat account is maintained by a Depository Participant (DP) who is registered with the Depository. A Depository is an organization that holds securities in electronic form. There are two Depositories in India - National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
Features of a Demat Account -
Electronic Holding: A Demat account holds securities in electronic form. This means that physical share certificates are not required to be held by the investor. The electronic holding of securities eliminates the risk of loss, theft, or damage to physical share certificates.
Ease of Trading: A Demat account enables easy and convenient trading of securities. The investor can buy or sell securities online through a broker. The shares are automatically credited or debited to the investor's Demat account.
Nomination: A Demat account can be nominated to ensure that in case of the account holder's death, the securities are transferred to the nominee without any hassle.
Loan against Securities: A Demat account holder can avail a loan against securities held in the account. The loan amount is based on the value of the securities held in the account.
Corporate Benefits: Demat account holders are eligible for corporate benefits such as dividends, bonus shares, and rights issues. These benefits are automatically credited to the Demat account.
Online Access: A Demat account can be accessed online, and investors can check their holdings, transaction history, and account statements online.
Benefits of a Demat Account
Safe and Secure: Demat account eliminates the risk of loss, theft, or damage to physical share certificates. The electronic holding of securities is safe and secure.
Convenient Trading: Demat account enables easy and convenient trading of securities. The investor can buy or sell securities online through a broker. The shares are automatically credited or debited to the investor's Demat account.
Nomination Facility: A Demat account can be nominated to ensure that in case of the account holder's death, the securities are transferred to the nominee without any hassle.
No Stamp Duty: There is no stamp duty on transfer of securities held in Demat form. This reduces the transaction cost for investors.
Corporate Benefits: Demat account holders are eligible for corporate benefits such as dividends, bonus shares, and rights issues. These benefits are automatically credited to the Demat account.
Loan against Securities: A Demat account holder can avail a loan against securities held in the account. The loan amount is based on the value of the securities held in the account.
Online Access: A Demat account can be accessed online, and investors can check their holdings, transaction history, and account statements online.
How to Open a Demat Account?
To open a Demat account, an investor needs to follow the below steps:
Choose a Depository Participant (DP): An investor needs to choose a DP who is registered with NSDL
To know more step by step demate account opening process - click here
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