Demat Account

What is a Demat Account?

A critical tool for maximizing your wealth and safekeeping, Demat accounts make share trading quick and easy. It eliminates the risks and challenges associated with physical share certificates. In India, if you wish to invest in the stock market, it is mandatory to open a Demat account.

What is a Demat Account?

Earlier, shares were held in a physical form through share certificates. However, it made the entire process of share trading cumbersome and difficult to carry out at short notice. To eliminate these limitations, the National Securities Depository Limited (NSDL) was established in 1996. They introduced the concept of Demat accounts, which could be used to electronically store shares and securities of companies. If you own physical shares, you need to convert them to electronic records before using a Demat account. This process is commonly known as dematerialization. With a Demat account, you can hold a wide variety of investments such as bonds, equity shares, government securities, mutual funds, and exchange-traded funds(ETFs). Similar to a bank account, a Demat account is either credited or debited each time you buy or sell shares of a company. It not only eliminates unnecessary paperwork but also helps streamline the process of share trading. All of the Demat accounts in India are maintained by two depositories, namely National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

Types of Demat accounts

In India, there are primarily three types of Demat accounts offered by depository participants.

• 1.Regular Demat accounts: These are dematerialized accounts for Indian residents. If you’re a resident of India dealing with equity trading and investment, a regular Demat account is ideal for you.
• 2.Repatriable Demat accounts: This is one of the two types of Demat accounts available for NRIs. A repatriable account allows you to transfer your funds abroad if you’re an NRI. You need to link this account with a Non-resident External (NRE) bank account to repatriate your funds.
• 3.Non-repatriable Demat accounts: If you’re an NRI, you can also choose to open a non-repatriable account. This type of account does not allow you to transfer funds abroad. It needs to be linked to a Non-resident Ordinary (NRO) bank account.

Features of Demat Account:

• Share transfer: You only need to send in a duly signed Delivery Instruction Slip (DIS) to your depository participant to transfer your shares.
• Loan collateral: You can pledge the securities you hold in a Demat account and use them as collateral for securing a loan from a financial institution.
• Temporary freeze: You can temporarily freeze your Demat account for a specific duration. However, this feature is generally only made available if you hold a specific number of shares in your account.
• Quick transfer of benefits: Best Demat accounts offer a swift transfer of benefits such as dividends, bonus issue of shares, stock splits, interest, and refunds.
• Speed e-facility: NSDL allows you to send instruction slips to your depository participant electronically. This not only makes the entire process faster but also less cumbersome.

Benefits of a Demat Account

In addition to being an indispensable part of the share market, Demat accounts come with several benefits such as:

• Swift settlements and deliveries
• Increased share trading volume and market participation
• Increased transparency
• Eliminates paperwork
• Quick and easy communication with investors
• Little to no risks are involved
• Builds trust and increases investor confidence

Buying stocks in the share market can be done only through a trading account which is later held in a Demat account. Therefore, to realize the full potential of a Demat account, it is imperative to link it with a trading account.

Opening Demat Account

Tips to Choose the Best Demat Account for You Check whether the account maintenance charges are economical Maintenance of Demat accounts involves annual charges irrespective of your transactional activity. You must, therefore, check out the range of charges involved with the Demat account and choose the most economical account. Enquire about the account opening process The Demat account opening process offered by your DP should be hassle-free and quick. Opening a Demat account involves a detailed process as per SEBI guidelines. The depository participant can simplify it with the help of e-KYC. Look for a seamless interface for broking and banking Depository participants also offer Demat accounts that serve as trading accounts too, thus providing seamless transfer of money during the sale or purchase of shares and securities. An interface between the two accounts not only simplifies transactions but also makes them economical. Check if the DP offers customised analytics for Demat account holdings Online analytics customised as per your choice of shares and security along with their investment habits allows you to increase earnings. You must look for value additions like these when choosing the best Demat account. Additionally, features like a shorter turnaround time (TAT) for share dematerialisation allow you to assess the DP’s commitment to serving investors. Final Words IIFL’s financial products and services have enriched the lives of over 4 million customers. At the heart of IIFL is an award-winning research team, which offers world-class technological solutions. Through a single Demat account opened with IIFL, you can invest in various options such as IPOs, derivatives, equities, commodities, and more, with daily and weekly reports.