- Convenience and Ease of Access
- Increased Transparency and Efficiency
- Accessibility to IPOs and Mutual Funds
- Multiple Account Management
- Loan against Securities
A Demat Account is an online account that helps investors to hold, buy, and sell securities in a digital format. Having a demat account is essential for investors who want to trade in stocks, bonds, and other market linked securities. The concept of Demat accounts online was introduced in India in 1996 to eliminate the cumbersome process of dealing in physical share certificates. The Securities and Exchange Board of India (SEBI) made dematerialisation compulsory in 1997. In this blog, we will discuss the advantages of having a Demat Account.
A Demat Account is crucial for anyone who wants to invest in securities, as it enables easy trading, tracking, and storage of securities. It eliminates the risks and hassles associated with physical share certificates, and thus it also facilitates seamless transactions.
Convenience and Ease of Access
An online Demat Account provides investors with easy access to their investment portfolio from anywhere, at any time. It allows for easy transfer of securities, reducing paperwork, and simplifying the tracking of investment portfolios. With easy tracking of investments, individuals can monitor their investment portfolio in real-time, and make timely decisions and tap the market opportunities in time. Further, various security measures are implemented by depository participants and thus demat transactions are safe and secure. The ease & convenience of demat account ensures peace of mind for investors.
Demat Accounts have significantly reduced physical transaction costs, lowered stamp duty charges, and eliminated the need to handle physical shares. It has also reduced the chances of errors as all transactions are electronic and the errors due to human intervention are not there. It’s cost-effective for investors to use demat account in place of paper certificates for trading & investing.
Further, most depository participants are offering free demat accounts with competitive brokerage plans as per user profile these days. The charges associated with Demat account are nominal and far above its benefits.
Demat accounts enable quick transfer of securities, eliminating the need to wait for physical delivery of shares. It also facilitates a faster settlement process and provides real-time information on trades and holdings. This also helps in offering liquidity & eliminating frauds.
Earlier transferring physical shares was a tedious & lengthy process. Now, as securities are stored in a dematerialised form, the transactions are processed quickly without any delay. Before Demat, it used to take long time. Now, settlements take T+2 time, i.e. 2 days after the transaction date.
Increased Transparency and Efficiency
Demat Accounts facilitate electronic storage of securities, ensuring immediate and accurate trade confirmation. It simplifies the process for corporate actions and improves record-keeping and reporting. All of your transactions are auto accounted by broker/ depository participant. This has increased transparency and efficiency. For instance, earlier changes in your account information like address, contact details or nominee used to go through multiple companies and thus systems were not efficient. However, with Demat account, you inform your depository participant i.e broker online or offline as per convenience and the change in KYC records is updated.
Accessibility to IPOs and Mutual Funds
It is a well-known fact that investing in IPOs and starting mutual SIPs could be two most lucrative decisions for long term investors. With Demat Account, you can conveniently apply for IPOs and invest in Mutual Funds, besides continuing your investments in shares and bonds. When an IPO is listed, you can apply for IPO through your DP’s app or website platform. All you need to do is login to your demat account and you can bid for the stocks. When you win the bid, the stocks will be allotted to your Demat account directly. You will get all notifications & details from your DP. Your Demat account offers you complete flexibility to choose the securities according to your profile.
Multiple Account Management
Investors can hold multiple securities in a single Demat Account, making it easy to track investment history. This also helps one manage financial at the end of the year. You get a complete dashboard to manage your stocks list. You depository participant provides market updates, upcoming stock opportunities, ipos to watch & much more. You can participate in securities according to your convenience.
Loan against Securities
While banks do not extend loans to participate in stock markets, you can however, avail loan against securities at current interest rates. The loan will be processed basis bank’s credit policy. Be it equity or debt investments, your market linked investments have ample liquidity. You can sell or lend it in the times of adversity. However, the loan terms readjust periodically according to market conditions. Generally these are short term loans.
All in all, holding a Demat Account is crucial for investors who want to trade in securities. It provides several advantages, including convenience, cost-effectiveness, time-saving, increased transparency and efficiency, accessibility to IPOs and Mutual Funds, multiple account management, and loan against securities. However, before opening a Demat Account, investors should consider their personal financial goals and investment strategies to ensure that it aligns with their overall financial plan.