What are the Benefits of a Demat Account?

Topics Covered

• What is a Demat Account?
• Benefits of Demat Accounts
• Easy Portfolio Tracking
• Why Do You Need a Demat Account?
• Conclusion

What is a Demat Account?

As mentioned above, this account is used to hold financial securities and instruments. When you purchase an asset, you can hold it in two ways. The first way is to ask for a paper certificate from the stock exchange or concerned issuer. The second way is to dematerialise and store the asset in a demat account. Dematerialisation is the process of converting physical securities into electronic through this account. Since paper certificates can get lost or damaged with time, dematerialisation is the preferred choice for many investors.

Besides dematerialisation, the benefits of demat accounts include security, portfolio monitoring, and share transfers. It is crucial to remember that it does not help with the purchase and sale of securities, as it is the task of a trading account.

Benefits of Demat Accounts

There are numerous advantages of demat accounts for traders, like:

Reduced Risk of Theft and Damage

Paper certificates might get damaged or lost with time. It might result in a loss, as you might fail to access your securities. On the other hand, demat accounts store electronic securities and eliminate the need for paper-based certificates. Electronic securities cannot get damaged or lost over time. However, you must choose a zero brokerage demat account that offers robust security.

Effortless Trading

The benefits of demat accounts can be experienced together with trading accounts. You can quickly settle trades when the demat account is linked with the trading account. For instance, you need not personally visit the company office or stock exchange to sell shares. You can use the trading account to debit shares from the linked account and sell them. Whether you are selling or purchasing assets, it can be done in a single click. Don’t forget to apply with a broker that offers a 2-in-1 (Demat cum trading) account facility.

Recommended Read: How to Open a Demat Account?

Easy Portfolio Tracking

Enhanced portfolio tracking/monitoring is one of the biggest advantages of demat accounts. It offers easy access to your holdings. You can view the entire portfolio via a media device. Brokers usually offer trading or investment platforms, which are used to log in to demat accounts. Investors can use a smartphone, laptop, or any other device to view holdings. Viewing holdings is essential for traders to make informed decisions. You can get an idea of total portfolio value and asset allocation with the help of a demat account.

Lower Costs

There were no demat accounts in India before 1996. Investors used to pay numerous demat account charges for paper certificates in the past. Stamp duty, processing fees, and other charges were imposed on investors. Luckily, you have the option of using this account and cutting down unnecessary costs. Demat accounts also have a few charges, but they are minimal compared to paper certificates. You will be asked for an Annual Maintenance Charge (AMC) once a year. The AMC is also reduced for investors with Basic Services Demat Accounts (BSDAs). Many discount brokers impose fewer brokerage and custodian charges for retail investors. In short, you will incur fewer investment and management costs with this account.

Hassle-Free IPO Investments

You might have heard of IPOs (Initial Public Offerings) in India. It is a process through which a company becomes a public entity and issues its shares for the first time. Companies launching their IPOs will not accept your application without this account details. They need your demat account to transfer shares during allotment. Benefits of demat accounts also include access to other investment schemes and holdings.

Dematerialisation and Rematerialisation Services

Once your account is linked to the trading account, securities will be automatically dematerialised. However, investors might have physical securities from earlier trades. They can be dematerialised after paying a fee with this account. Advantages of demat account accounts also include rematerialisation service, which is changing dematerialised securities into their physical form.

Recommended Read: Fill Dematerialization Request Form

Why Do You Need a Demat Account?

The pros of good demat accounts highlight their importance in today’s era. You need an account to indulge in online trading fully. There’s no point in carrying paper certificates when dematerialisation services are available. Investors also require Demat accounts for taking corporate actions. Receiving rights/bonus issues, dividends, and IPO allotments becomes easy. It also keep users updated with stock splits, M&As, tender offers, pledging, and corporate announcements. You can use a media device to access your demat account and indulge in these corporate actions. There is no need to visit the company’s office or a stock exchange every time. Not to forget, investors also need these accounts for effective portfolio tracking. You can view your holdings even when you are out of the country with access to your account!

Recommended Read: Minor Demat Account

Conclusion

This is one of the most important tools in today’s investment landscape. You cannot fully engage in online trading without a demat account. Corporate actions and announcements can be easily managed. You can view your portfolio holdings at all times and make informed decisions. Choose a reliable broker to open both demat and trading accounts now!