Investors must understand how to use Demat accounts to their advantage. They cannot hold electronic securities without a Demat account in India. Gone are the days when investors preferred paper certificates over electronic securities. Investors now prefer Demat accounts for hassle-free storage of securities. Continue reading to understand how to use Demat accounts in India.
- What is a Demat Account?
- How to Use a Demat Account?
- Can I Trade Shares Without a Demat Account?
- Costs Involving Demat Account
- Conclusion
Topics Covered :
What is a Demat Account?
Before going any further, it is critical to understand the fundamentals of demat account meaning. A demat account is an electronic account that holds financial securities, like stocks, mutual fund units, and IPO shares. As the name suggests, the account helps with the dematerialization of securities. The process of dematerialization involves converting physical securities into their electronic form. The dematerialized securities are stored within the Demat account for as long as you want.
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Investors aren’t compelled to open Demat account to invest in India. However, there will be several hassles without a Demat account. For instance, you cannot dematerialise your securities without a Demat account. You will need to collect paper certificates from stock exchanges for every transaction or trade. Paper certificates might get lost or damaged, thus leaving you at risk. On the other hand, a Demat account will automatically dematerialise your securities and remove the need for paper certificates.
How to Use a Demat Account?
Before delving deeper, you must know where to open new demat account. You must search for a reliable intermediary, also known as a Depository Participant (DP), in India. Stockbrokers are also DPs offering Demat account services. You can apply for a Demat account with a reputed DP online or offline. For Demat account approval, you must provide KYC documents, like a PAN, Aadhaar, and a cancelled cheque. After verification, the DP will provide you with the Demat account credentials.
Recommended Read: Benefits of Demat Account
Investors open Demat accounts for multiple purposes. Once you have a free brokerage demat account, you can use it to store electronic securities. You can also use the dematerialisation account for portfolio monitoring, as you can track your holdings. Demat accounts also help investors with different corporate actions, like bonus issues, stock splits, and dividends. Are you worried about how to operate Demat accounts effectively? Don’t worry because the intuitive interface of the Demat account will help you take action easily.
Here's how to use your Demat account effectively in India:
Use the Demat Account Credentials
After account approval, the concerned DP will provide your Demat account credentials. You will receive a unique Demat account number and the password. You are allowed to change the Demat account password as per your preferences. The DP will also provide an online portal or mobile application where you can log in to your Demat account. Keep the account credentials safe, and do not share them with anyone.
Link Your Demat and Brokerage Accounts
Investors must know that a Demat account is not used to place orders or make trades. It is only used for holding electronic securities and portfolio monitoring. You need a zero brokerage trading account to place orders for securities. Also, it is essential to link your trading and Demat accounts. Securities purchased via the trading account will be dematerialised when the Demat account is linked.
Give POA to the Broker
Are you worried about how to use a Demat account for trading and dematerialising securities? When you open a new Demat account, you can give POA (Power of Attorney) to the stockbroker. It will allow the broker to dematerialise, debit and credit securities on your request quickly.
Wait for Trade Settlement After Purchase
You might not receive shares in your Demat account immediately after the purchase. It might take around two days for shares to reflect in your Demat account. Your broker or DP will take some time to settle the trade.
Can I Trade Shares Without a Demat Account?
It is possible to trade without a Demat account, but there are uncountable problems. The first issue is carrying physical certificates for each share trade. Also, there are fewer investors interested in dealing with physical securities. You might experience decreased liquidity when having paper certificates, as no one might be interested in buying/selling them. Investors know that they will pay additional charges to dematerialise the securities first. For the same rationale, they might not be interested in dealing with physical securities. Investors who want to indulge in online trading must open the best demat account for trading. It will save them from the hassle of carrying physical certificates and visiting stock exchanges frequently.
Costs Involving Demat Account
Before investors open Demat accounts, they must know about these charges:
Account Opening Fees
The stockbroker or DP might ask for a small fee to open a Demat account in your name. The provider charges a one-time fee to complete formalities regarding a new Demat account, which typically includes demat account opening charges, maintenance fees, and transaction charges.
AMC
AMC, or Annual Maintenance Charge, is a yearly fee imposed by the Demat account provider. It is charged by the provider to maintain your Demat account at all times. Your Demat account might be deactivated in case of pending AMC.
Recommended Read : Demat Account Fees & Charges
Custodian Charges
The stockbroker or DP is responsible for keeping your securities safe within the Demat account. The provider demands custodian charges for the same. Depending on the Demat account provider, it can be a one-time or an annual fee.
Transaction Charges
You might have to pay a transaction fee every time you transact from your Demat account. It means you will pay charges for debiting or crediting securities in your Demat account.
Conclusion
Investors must know how to use a Demat account for trading trading. There’s no point in carrying paper certificates when the dematerialisation facility is available. Choose a reputed stockbroker or DP to open a new Demat account in India. Also, don’t forget to link your Demat account with the trading/brokerage account for seamless trading. Start using a Demat account now!
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