A demat account functions in the same way as a bank account would function. While a bank account is used to store funds, it can also be used to withdraw and deposit funds. Similarly, the demat account is also used to store and deposit securities in its electronic form. These securities are stored in the form of shares, bonds or debentures. As per the Depository Act of 1996, demat accounts are now being made mandatory, if you have more than 500 units in securities,
But while this account is used for this purpose, it also has plenty of benefits. By using these benefits to your advantage, you can make the most of your investment. Here are some of the benefit of this account which you should be aware of.
• One of the main benefits of the demat account is that it is a convenient mode to hold your securities. When you purchase or sell any security, you need not worry about storing it any option, as the demat account is designed to hold these securities in a secure manner.
• Your broker can always hold your securities anytime you purchase or sell them. However, it comes at a price. But the demat account, you need not worry about high brokerage fees, as they have their service fees which are considerably cheaper.
• Before securities were dematerialized, they were preserved and stored physically. However, this increased the risk of misplacement, especially if kept with the broker. Additionally, there was always a risk of thefts and fake securities. Apart from this, there was a high chance of delays in the turnaround period of selling or purchasing. However, with this account, securities are now stored in a dematerialized format which can be electronically accessed. This eliminated all the risks involved with the previous form of storage.
• Apart from the risks of materialized securities, stamp duty was also involved in the transferring. However, with the electronic conversion, there is no stamp duty involved. This reduced the overall expenses when it comes to trading stock.
• The depositary participants are enlisted by the National Securities Depository Limited or Central Securities Depository Limited. These two entities are core linked. Therefore, if there is any change made with a DP, it is updated with the depository as well as the other DP’s.
• As a demat account holder, you can make multiple transactions. You can sell or purchase a single share, anytime you want. As compared to the previous form of storing, it was difficult to purchase or sell physical securities as they used to be stacked together. Dematerialized securities are easily divisible electronically, making it easier to share any amount of shares at any time.