Individuals getting tempted towards financial markets to employ funds should know that they need to open a demat account first. A demat account, short for dematerialised, is a prerequisite to investing in the stock market. It helps investors to access stock market investments online.
Here is a guidepost to get clarity on how a demat account works and know its features. It can help newbies to choose the best demat account to invest in the stock market with cost efficiency.
Understand the Need for a Demat Account
Since 1996, the Indian stock market has been operating online. Stock market functioning is based on stock exchanges that have shifted online from grounds. They deal with dematerialised securities only. Therefore, individuals must open a demat account and hold their digital financial securities electronically.
Overview of Features and Benefits of a Demat Account
Here are the features and benefits of a demat account that one should know besides ‘what is demat account’:
1. Safe Digital Storage
A demat account is a safe wallet to store financial securities digitally. Every transaction in a demat account is completed following the rules and regulations of the SEBI (Securities Exchange Board of India). Therefore, there are rare chances of forgery, delay, or fraud. Demat accounts also eliminate the possibility of fake signatures on paper-based share certificates.
2. Fast Transfer of Securities and Trade Settlement
With a demat account, one can make hassle-free investments, also it has reduced the settlement period. Ownership transfer and trade settlement take only T+2 days, i.e., two days after the transaction date. It is a remarkable improvement over the offline trading system which was a process of months for trade settlement and share transfer.
3. Zero Balance Requirement
Open a demat account without even holding shares. It is a zero-balance account that can be opened and maintained without any restriction on holdings.
4. No Paperwork
A demat account enables investors to process securities instantly as there is no paperwork involved. Also, opening a demat account is a 100% digital process that can be completed on the official website of the broker.
5. Automatic Disbursement of Corporate Benefits
Corporate benefits, like bonus issues, stock splits, and dividend payouts, are credited to a demat account automatically. Investors need not worry about the disbursements of the benefits of investments.
6. The Solution to Odd Lot Issue
The demat account has solved the odd lot issue. Now investors can invest even in a stock of a company. In the offline trading system, it was not allowed and made the stock market for high net-worth individuals. Now there is explosive growth in retail participation in the stock market.
7. Hold Securities Regardless of Investment Duration
Stock markets give numerous short-term and long-term opportunities that can be grabbed using a demat account to make significant returns in different time frames. It allows investors to hold their shares, bonds, government securities, and other securities as per their requirements or investment horizon. It allows debit or credit securities whenever needed to make profits.
8. Freeze the Demat Account for Certain Periods
Whenever investors want to take a break from stock trading or need to focus on an event where they need to give all their time, they can opt for freezing of their demat account for certain. It is one of the smart steps to ensure the safety of demat accounts in their absence.
9. Pledge Creation
In the online trading system, the SEBI allows traders to pledge their shares to facilitate margin trading. Utilise the shares available in the demat account to create a margin pledge and obtain the required amount of money to fund a margin trade.
Investors can open an online demat account for hassle-free investments with a PAN (Permanent Account Number) card. Complete the account opening process with e-KYC (Know Your Customer) and using Aadhaar-card linked mobile number.
