Posted by The understanding of a Demat account in India is comparatively less as per the data by SEBI. As of 2018, there were only 38.4 Million Demat accounts opened. In comparison, Indians have 80% more savings or current accounts than the number of Demat accounts.
Understanding Demat Account
- Before starting to trade, an investor needs to open a demat and trading account. An account opened virtually that allows you to hold and trade over the internet is an online Demat Account.
- The Demat accounts are opened by the Depository Participants ;
- Open Banking institutions
- Stock brokering Houses
- Financial Institutions
- In a Demat account, the physical shares and other securities are converted and stored in an electronic or digital format.
- Before 1996, investors used to hold hard copies of the shares for any company. And in 1996 Securities Exchange Board India (SEBI) ruled out a regulation stating that Demat accounts are compulsory for investors who want to trade in the stock market.
- Demat accounts and bank accounts are quite similar. At the time of sale or purchase, the Demat account is either debited or credited with the securities which were bought or sold.
Advantages of Demat Account
The advantages of Demat accounts are amplified if they are linked to the bank accounts of the investor. Here are some of the advantages listed of a Demat account;
- Easily Accessible: An investor can easily access his/her Demat account on their smartphones, tablets, monitor, and laptops. It becomes easy for investors to examine the chart on one system and place the trade on another.
- Easy conversion: The investor has to instruct his/her Depository Participant to convert his physical shares (if any) into electronic format.
- Safety: Safety of money and securities is one of the major concerns for any investor who is putting in the money to invest. And SEBI registered brokers are compelled to provide their customers with the safety of their money and securities.
- Opening A Trading Account: A Demat account is different from a trading account, Demat account only allows to hold financial securities. To trade in financial markets, an investor requires a Trading account. And then, the investor has to link his/her Demat account number with the trading account.
- Ease in transactions: The Demat account has created buying and selling of shares very easy. The shares that are bought or sold take two days to reflect in the Demat account.
- Easy Liquidation of Shares: The Demat account gives you an option to liquidate your shares and receive money directly into your bank account or the money is first deposited into the Demat account and then you can transfer the required amount to your bank account. The whole procedure can be done within minutes.
- Under One Roof: The Demat account not only stores the shares but also all the financial assets of an investor. All the financial assets are under one roof, thus making it easier for the investor to track and manage.
- Simplified Accounting: The financial assets which are held in the Demat accounts are self-accounted by the depository participant. Thus making the management of the account easier.
The Relationship Between Demat Account, Trading Account, and Bank Account
Before investing an investor requires these three types of account Demat Account, Trading, and the Bank Account.
Once you make an order for sale or purchase of any security the order is placed via a trading account and the security is stored in the Demat account. You need to care for your family’s health by taking family health insurance plans. When the order is completed, if it is a buy order then the stock exchanges ask for money from your broker which is then debited from your bank account. And vice-versa if it is a sell order.
SEBI Guideline
As per SEBI guidelines, you cannot invest in stock markets without a Demat account. As an investor, it is always a herculean task to identify the right broker/Depository Participant (DP) to open a Demat and trading account. Moreover, exponential growth in the number of Demat Account service providers in the brokerage services market has added to the complexity of this problem. Are you thinking to start your medical career? Here are financial tips for doctors to know.
While most of the traditional brokers charge brokerage as per volume of trades, some brokers follow a flat-fee brokerage model wherein you have to pay a fixed fee irrespective of the number of trades you execute. With no upper limits on trading frequency, it is a very cost-effective model for investors with high trading volumes.
They offer three annual subscription packs – Freedom Pack, Beginner Pack and Professional Pack, tailored to suit different types of investors.
Conclusion It has become equally important for every Indian investor to open a Demat account along with a bank account. Investors can take advantage of the equity market during the starting journey of investing and then put their savings money to some use. Investors should start with a trusted brand and one that provides a low brokerage trading account.