Importance of a Demat account
A Demat account ensures your shares and investments are stored safely, without the risk of paper certificates being lost, damaged, or forged. It allows for quick digital transfers and directly credits bonuses or dividends to your account automatically.
Trading has become faster and more convenient—you can buy or sell shares from your phone or computer. There’s no need to visit a stock exchange, and digital trades usually have lower costs. In India, shares bought are credited to your account by the next business day, making the process smooth and efficient.
Features of Demat account
Here are some well known features of demat account
1. Easy access
Investors can conveniently view and manage their investments through net banking.
2. Effortless dematerialisation
A depository participant (DP) assists in converting physical share certificates into electronic form and vice versa.
3. Automated receipt of dividends & benefits
Stock dividends, refunds, and interest payments are credited directly to the investor’s account through an Electronic Clearing Service (ECS).
4. Simplified share transfers
The transfer of shares has become quicker and more efficient with a Demat account.
5. Enhanced liquidity
Investors can easily sell shares and access funds when needed.
6. Loan against securities
Investors can leverage the securities in their Demat account as collateral to obtain loans.
7. Account freezing option
Investors can freeze certain securities within their account for a specific period, restricting any transactions related to those holdings.
How does a Demat account work?
Demat accounts are primarily used to hold the bought shares. Check here step by step process:
- In case you want to buy or sell a specific share, you need to login to your Demat and trading account, which is also linked to your bank account.
- When a ‘buy’, or ‘sell’ request is placed in a trading account, the Depository Participant, forwards this to the stock exchange on an immediate basis.
- When you place a buy order, the stock exchange matches it with a seller at the agreed price. Then, a clearing house processes the transaction, transferring the shares from the seller’s Demat account into your Demat account securely.
Please note, the buyer and the seller may hold Demat Accounts with Depository Participants belonging to different depositories.
Benefits of a Demat account
Let us explore the benefits of owning a Demat account
1. No paper worries
Before Demat accounts existed, shares were issued as paper certificates. Investors had to store these physical documents, which could be lost, damaged, or forged. Transferring shares also meant filling out paperwork, often leading to errors and delays. With Demat accounts, all your holdings are stored digitally—securely and conveniently.
2. Easy storage & transfer
This allows you to store any number of shares, so you can trade in volumes and monitor the details of all the shares you hold in a Demat account. It further facilitates the swift transfer of shares while trading online.
3. Automatic updates for bonus stock-splits
If an initiative of the company whose shares you are holding brings in a change to its stocks such as bonus issue, stock split, etc., it will be updated automatically in your Demat account.
4. All-in-one investment storage
Besides the shares, the Demat account can also hold multiple assets, like bonds, mutual funds, exchange traded funds, government securities, etc.
5. Easy access online
You can access your Demat account anytime, anywhere, through your smartphone or laptop.
6. Easy nomination process
A Demat account also provides the nomination facility as per the process described by the depository. In case of the investor’s demise, the appointed nominee will receive the shareholding in their Demat account.
7. Easy tracking of trading activities
A Demat account allows you to easily track all your trading activities in one place. You can access a detailed history of your transactions, including purchases, sales, and transfers, helping you stay on top of your investments and make informed decisions.
Types of Demat account
In India, there are three major types of Demat accounts offered by Depository Participants.
1. Regular Demat accounts
These are meant for Indian residents. If you are dealing with investment and equity trading, a regular Demat Account is the best option for you. Here the charges are dependent on the type subscribed, volume that is there in the account and the various terms and conditions set by the depository and the DP (Depository Participant).
2. Repatriable Demat account
This kind of Demat Account is good for NRIs, who wishes to invest in the Indian Stock Market quickly from any part of the world. Such an account is useful for NRIs as with the help of such an account, they can transfer their funds to various foreign countries. But NRIs looking to hold a Repatriable Demat Account need to possess an associated NRE bank account.
3. Non-repatriable Demat account
This is similar to a repatriable Demat Account and is also for NRIs. However, this account doesn’t allow you to transfer funds abroad. This requires you to link it to a Non-resident Ordinary (NRO) bank account.
4. Basic Services Demat Account (BSDA)
A Basic Services Demat Account (BSDA) is a new type of Demat account introduced by SEBI. These accounts have no maintenance charges if the holding value is less than Rs. 50,000. For holdings between Rs. 50,000 and Rs. 2 lakh, the charges are Rs. 100. This account is designed for new investors who have not yet opened a Demat account.
Documents required for Demat account opening
To open a Demat Account without any hassle, you should have some essential documents. Listed below are the documents that’s required to open a Demat account with Bajaj Financial Securities Limited.
- PAN card
- Proof of address (Aadhar card, driving license, passport)
- Photograph
- Signature on white paper
- Income proof, for activation of futures and options segment
- Cancelled cheque or last 3 months’ bank statements
Demat account charges
While many brokerage firms offer free Demat account opening, investors should be aware of the associated fees that contribute to account maintenance and transaction processing. These charges can vary among different brokerage houses, including banks.
1. Annual Maintenance Charges (AMC)
Most firms impose an annual AMC for Demat accounts. The specific charges are determined by the depositories (NSDL or CDSL) based on the investor's holdings. SEBI has implemented revised AMC rates for Basic Services Demat Accounts (BSDA) effective June 1, 2019, offering exemptions for certain debt securities.
2. Custodian fees
A one-time or annual custodian fee is charged by depository partners. This fee is paid directly to the depository by the brokerage firm.
3. Demat and Remat charges
These charges are levied as a percentage of the transaction value to cover the costs associated with digitising or physically printing securities.
In addition to these core charges, investors may also incur fees for credit services, applicable taxes and cess, rejected instructions, and other miscellaneous expenses.
While Demat accounts remain a popular investment tool for the stock market, the emergence of online trading platforms has provided investors with the option to trade without the need for a Demat account.
Conclusion
A Demat account is essential for today’s investors, offering a digital way to manage and store investments. It enhances security, simplifies transfers, and enables smarter portfolio tracking. While there may be some charges and online risks, the benefits—like convenience, safety, and efficiency—far outweigh them. Opening one is quick, often done entirely online, making it a vital tool for anyone investing in the stock market.
Explore more related topics
