A Demat account, short for "Dematerialised account," is an electronic account that holds securities such as stocks, bonds, debentures, and other financial instruments in digital format. This account eliminates the need for physical share certificates and facilitates easy and secure trading and investment in the stock market.
How to use a Demat account?
To use a Demat account in the Indian securities market, you need to follow these steps:
- Open a Demat account: You can open a Demat account with a depository participant (DP) registered with the Securities and Exchange Board of India (SEBI). You will need to provide your PAN card, Aadhaar card, and other KYC documents. Once your account is approved, you will receive a unique Demat account number (DP ID) and client ID.
- Link your Demat account to a trading account: You will need to link your Demat account to a trading account to start trading in the Indian securities market. You can open a trading account with a broker registered with SEBI.
- Start trading: Once your Demat and trading accounts are linked, you can start trading in the Indian securities market. You can buy and sell shares, bonds, ETFs, mutual funds, and other securities using your trading account.
In addition, once you place an order to buy or sell shares, a request is sent to the stock exchange. If your order matches with another investor who placed a sell or buy request at a similar price, the order gets executed. It takes T+1 days for the credit or debit of shares in a Demat account after the execution of trade and the confirmation from the exchange, where T is the day of trade.
Important terms associated with Demat account
- Dematerialise:
Dematerialisation is the process of converting physical share certificates into electronic form. When shares are dematerialised, they are credited to the investor's Demat account, allowing for easy and secure electronic trading and management. - Rematerialise:
Rematerialisation is the reverse process of dematerialisation. It involves converting electronic securities held in a Demat account back into physical certificates. This process is relatively less common, as electronic holding is the norm in modern securities trading. - Demat Debit and Pledge Instruction (DDPI):
A Demat Debit and Pledge Instruction (DDPI) is a request made by the Demat account holder to debit securities from their account for various purposes. This can include transferring securities to another account, selling them in the market, or pledging them as collateral for loans. - Nomination Facility:
The nomination facility in a Demat account allows the account holder to nominate a person who will receive the securities due to certain events or unforeseen circumstances. - Central Depositories:
Central Depositories are organisations responsible for the central holding and maintenance of electronic securities in dematerialised form. In the Indian context, two central depositories are prominent: the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). These entities facilitate the electronic transfer and settlement of securities. - Depository Participant:
A Depository Participant (DP) is a financial institution authorised by a depository (e.g., NSDL or CDSL) to offer Demat account services to investors. DPs act as intermediaries between the depository and the investors, providing a platform for opening and maintaining Demat accounts, as well as facilitating the transfer of securities.
Conclusion
A Demat account has become an integral part of the stock market infrastructure, streamlining and modernising the process of buying, selling, and holding securities. It offers investors a convenient and secure way to participate in the financial markets without the complications associated with physical share certificates.
