What is a Demat Account?
Shares and securities in India are electronically held rather than in their physical forms i.e. in terms of certificates and this is where a demat or dematerialized account comes into play. In order to be able to invest in shares or securities, a shareholder needs to have a demat account.
Being a shareholder you need to open a demat account with your investment broker or at times the sub broker. Your account number acts as your unique identification number and is used for all the electronic transactions of shares. Without this number, transaction cannot be initiated.
This account however is similar to that of a regular bank account but with an exclusive purpose i.e. it is used only for trading shares. To gain access to a demat account, a transaction password and an internet password is however needed.
Features of a Demat Account
There are various rewards of having a demat account. These are mentioned below:
1. A Demat account enables electronic storing of shares and securities saving you from the task of manually storing all the certificates and the relevant documents.
2. Once you have a demat account, the bonus shares or the right shares which you may get occasionally get directly transferred to your account thus nullifying the risk of loss due to untoward incidents like fire, damage or theft.
3. Demat account eradicates all the problems you might have faced in the physical transaction of shares or securities like lost in transit, theft, forgery, delay in receiving, signature mismatching, etc.
4. The brokerage or the transaction cost that you need to pay is minimal often below 1% and this also paves you the way to avoid the stamp duty charges which subsequently reduces transaction costs.
5. A Demat account makes the transaction process easier and hassle free with no minimum number of purchase or sale specified. You can also purchase or sell some shares if you want.
6. You can deal with both equity and debt instruments via a single demat account.
7. You can operate your demat account from anywhere inside the country provided you have an internet access.
8. When you change your address with the Depository Participant (DP) who acts as an intermediary between the investor and the institution (depository) that maintains the huge number of shares from numerous companies, your address automatically get updated in all the companies whose shares you have been holding thus eliminating your task of informing them separately.