Trading

February 18, 2024

Benefits of DEMAT Account and Why Do You Need One?

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Shakshi

Project Manager

Did you know? In India, if you want to engage in shares trading, having a Demat account is a must! Before Demat accounts, people used to keep pieces of paper (share certificates) to show they owned shares. It was a hassle because you had to be careful not to lose or damage the papers. Trading shares was slow and involved a lot of paperwork. Going through these problems, the National Securities Depository Limited (NSDL) instead saw more benefits of Demat accounts in1996. 

Demat accounts made it easier by putting everything in electronic form. So, instead of dealing with papers, you can quickly and securely manage your shares online.

What is a Demat Account?

A Demat account—short for Dematerialized account—acts like a digital wallet for a company’s shares. It holds them in an electronic or dematerialized form, eliminating the need for physical certificates. 

It's a must-have for traders or investors in India who want to buy, sell, and manage shares conveniently online. It's a secure and efficient way to keep track of your investments.

Dematerialization, in financial markets, requires converting physical certificates (that represents ownership of securities)—such as shares and bonds—into electronic or digital form. 

Why is It Important to Have a Demat Account? 

Before Demat accounts, investors used to handle physical share certificates. But it had a lot of problems like:

  • Physical share certificates were susceptible to loss, theft, or damage, 
  • Involved a lot of paperwork and a slower process.
  • Required physical handling and paper organization.

But when you create a Demat account, it makes your trading journey way easier and straightforward. 

  • There's no risk of losing physical certificates. 
  • The chances of damage or theft are significantly reduced.
  • Easily view and manage your portfolio online. 

This guarantees a standardized system for handling trades, making it an essential requirement for anyone looking to invest in stocks.

Go Pocket starts with a ₹0 brokerage fee. Create a Demat account today!

Benefits of Demat Account 

The benefits of having a Demat account include:

1. Save Your Shares Hassle-free

Demat accounts replace physical share certificates with electronic storage, reducing the risk of loss, damage, or theft. Share trade online. Reduce the risk of security.

2. Manage your Shares Portfolio Online

Investors can easily track and manage their investment portfolios in real-time. They can access information about holdings and transactions online, right through their mobile devices.

3. Make Settlements Quickly

Settlement of trades occurs faster as there is no physical transfer of documents. This contributes to a more efficient and timely process.

4. Take Corporate Actions Fasters

Corporate actions such as dividends, bonuses, and rights issues are automatically credited to Demat accounts, simplifying the process for investors.

5. Smart Record-Keeping

Securities are held in centralized depositories, streamlining record-keeping and reducing the chances of errors associated with manual documentation.

Types of Demat Account

There are four main types of Demat accounts, each specific to business needs and capacity. 

Basic Demat Account

A Basic Demat Account is designed for small investors who may not engage in frequent trading. It often comes with lower maintenance fees and is suitable for those who have a limited number of transactions.

Suitable if you are a small investor who want to:
  • Keep the cost of maintaining the account at a minimum 
  • Not engage in frequent transactions, 

Regular Demat Account

A Regular Demat Account is the standard and most common type. It caters to individual investors and provides all the essential features for buying, selling, and holding a wide range of financial instruments like stocks, bonds, and mutual fund units.

Suitable for most individual investors who:
  • Actively participate in the stock market. 
  • Plan to trade in various financial instruments (including stocks, bonds, and mutual funds).
  • Want a standard, all-features account.

Repatriable Demat Account

A Repatriable Demat Account is specifically designed for Non-Resident Indians (NRIs) who want to invest in the Indian stock market. It allows them to repatriate the funds and earnings back to their foreign accounts. This type is essential for NRIs who may have income abroad.

Suitable if you are a Non-Resident Indian (NRI) and want to:

  • Invest in the Indian stock market. 
  • Maintain the flexibility to repatriate funds and earnings back to your foreign account.

Non-Repatriable Demat Account

In contrast, a Non-Repatriable Demat Account is also for NRIs but is suited for funds that cannot be repatriated. It's meant for NRIs who want to manage their earnings in India and not transfer them abroad.

Suitable if you are a Non-Resident Indian (NRI) and want to:

  • Invest in the Indian stock market. 
  • Keep funds within the country.

How to Open a Demat Account?

Opening a Demat account involves a few steps. Here's a general guide on how to open a Demat account:

Step 1: Choose a Depository Participant (DP)

Select a brokerage or financial institution that is registered as a Depository Participant (DP) with a depository like NSDL or CDSL. 

DPs help with the opening of Demat accounts.

Image source

You can even use Go Pocket’s mobile app to open a Demat Account at the comfort of your home. 

Step 2: Fill Application Form

Obtain the account opening application form from the chosen DP. This form is typically available online or at the DP's office. 

To complete the application form, you’re usually required to submit necessary documents such as:

  • Pan Card
  • Aadhar Card
  • Bank Passbook
  • Last Six Months Salary Slips
  • Passport-size Photographs

Enter Pan Card details

Enter Aadhar Card Details

Link your bank account details. These details will be used to fund transfer while trading. 

Review and sign the Demat account agreements, terms, and disclosures provided by the DP. 

Step 3: Activate the Demat Account

Once approved, you will be provided with a 16-digit Demat account number (also known as DP ID).

Other details of your Demat account that you’ll receive are:

  • An 8-digit DP identification code.
  • Login ID and Password to your account.
  • An authorization letter (power of attorney document) without which a broker cannot engage in trading with the client. 

Now you have your Demat account all set up!

If you intend to trade in the stock market, you may also need to link your Demat account with a trading account. Many brokers offer both Demat and trading accounts as an integrated package.

How Does a Demat Account Work?

We’re assuming that you’re looking to use your Demat account for trading. 

Well, the good news is that a Demat account makes the trading process all hassle-free for you. You can buy, sell, and hold financial instruments (like stocks) according to your preferences. 

Here’s how a Demat account works:

  1. Create a Demat account or login to buy/sell a specific share.
  1. Place a ‘buy’ or ‘sell’ request in your trading account.
  1. The DP will forward your request to the stock exchange immediately.
  1. In case you put a ‘buy’ request, the stock exchange will search for suitable sellers. Once found, the selected seller will debit those shares from his Demat account and credit it to your Demat account.
  1. In case you put a ‘sell’ request, the stock exchange will look up for buyers. Your shares will then be debited and credited to the buyers’ account.

Please note: In India, it takes upto 2+ days (after trade) for exchanged stocks/funds to be reflected in your Demat account. 

Go Pocket starts with a ₹0 brokerage fee. Create a Demat account today!

FAQs on Benefits of Demat Account

What are the disadvantages of Demat accounts?

Demat accounts may have maintenance fees and transaction charges. Additionally, technology issues or account inactivity may pose challenges. However, these drawbacks are outweighed by the benefits of efficient trading and reduced paperwork.

Can I keep money in a Demat account?

No, a Demat account is for holding and trading securities, not for keeping money. Funds related to trading activities are usually stored in a linked trading account.

What is the minimum balance in a Demat account?

There isn't a specific minimum balance requirement for a Demat account. However, brokers may have their own criteria, and some may charge maintenance fees if the account falls below a certain threshold.

Can we withdraw money from a Demat account? 

No, you cannot withdraw money directly from a Demat account. Withdrawals or transfers of funds are typically managed through a linked trading account connected to your Demat account.

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Shakshi

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Benefits of DEMAT Account and Why Do You Need One?

February 18, 2024

Did you know? In India, if you want to engage in shares trading, having a Demat account is a must! Before Demat accounts, people used to keep pieces of paper (share certificates) to show they owned shares. It was a hassle because you had to be careful not to lose or damage the papers. Trading shares was slow and involved a lot of paperwork. Going through these problems, the National Securities Depository Limited (NSDL) instead saw more benefits of Demat accounts in1996. 

Demat accounts made it easier by putting everything in electronic form. So, instead of dealing with papers, you can quickly and securely manage your shares online.

What is a Demat Account?

A Demat account—short for Dematerialized account—acts like a digital wallet for a company’s shares. It holds them in an electronic or dematerialized form, eliminating the need for physical certificates. 

It's a must-have for traders or investors in India who want to buy, sell, and manage shares conveniently online. It's a secure and efficient way to keep track of your investments.

Dematerialization, in financial markets, requires converting physical certificates (that represents ownership of securities)—such as shares and bonds—into electronic or digital form. 

Why is It Important to Have a Demat Account? 

Before Demat accounts, investors used to handle physical share certificates. But it had a lot of problems like:

  • Physical share certificates were susceptible to loss, theft, or damage, 
  • Involved a lot of paperwork and a slower process.
  • Required physical handling and paper organization.

But when you create a Demat account, it makes your trading journey way easier and straightforward. 

  • There's no risk of losing physical certificates. 
  • The chances of damage or theft are significantly reduced.
  • Easily view and manage your portfolio online. 

This guarantees a standardized system for handling trades, making it an essential requirement for anyone looking to invest in stocks.

Go Pocket starts with a ₹0 brokerage fee. Create a Demat account today!

Benefits of Demat Account 

The benefits of having a Demat account include:

1. Save Your Shares Hassle-free

Demat accounts replace physical share certificates with electronic storage, reducing the risk of loss, damage, or theft. Share trade online. Reduce the risk of security.

2. Manage your Shares Portfolio Online

Investors can easily track and manage their investment portfolios in real-time. They can access information about holdings and transactions online, right through their mobile devices.

3. Make Settlements Quickly

Settlement of trades occurs faster as there is no physical transfer of documents. This contributes to a more efficient and timely process.

4. Take Corporate Actions Fasters

Corporate actions such as dividends, bonuses, and rights issues are automatically credited to Demat accounts, simplifying the process for investors.

5. Smart Record-Keeping

Securities are held in centralized depositories, streamlining record-keeping and reducing the chances of errors associated with manual documentation.

Types of Demat Account

There are four main types of Demat accounts, each specific to business needs and capacity. 

Basic Demat Account

A Basic Demat Account is designed for small investors who may not engage in frequent trading. It often comes with lower maintenance fees and is suitable for those who have a limited number of transactions.

Suitable if you are a small investor who want to:
  • Keep the cost of maintaining the account at a minimum 
  • Not engage in frequent transactions, 

Regular Demat Account

A Regular Demat Account is the standard and most common type. It caters to individual investors and provides all the essential features for buying, selling, and holding a wide range of financial instruments like stocks, bonds, and mutual fund units.

Suitable for most individual investors who:
  • Actively participate in the stock market. 
  • Plan to trade in various financial instruments (including stocks, bonds, and mutual funds).
  • Want a standard, all-features account.

Repatriable Demat Account

A Repatriable Demat Account is specifically designed for Non-Resident Indians (NRIs) who want to invest in the Indian stock market. It allows them to repatriate the funds and earnings back to their foreign accounts. This type is essential for NRIs who may have income abroad.

Suitable if you are a Non-Resident Indian (NRI) and want to:

  • Invest in the Indian stock market. 
  • Maintain the flexibility to repatriate funds and earnings back to your foreign account.

Non-Repatriable Demat Account

In contrast, a Non-Repatriable Demat Account is also for NRIs but is suited for funds that cannot be repatriated. It's meant for NRIs who want to manage their earnings in India and not transfer them abroad.

Suitable if you are a Non-Resident Indian (NRI) and want to:

  • Invest in the Indian stock market. 
  • Keep funds within the country.

How to Open a Demat Account?

Opening a Demat account involves a few steps. Here's a general guide on how to open a Demat account:

Step 1: Choose a Depository Participant (DP)

Select a brokerage or financial institution that is registered as a Depository Participant (DP) with a depository like NSDL or CDSL. 

DPs help with the opening of Demat accounts.

Image source

You can even use Go Pocket’s mobile app to open a Demat Account at the comfort of your home. 

Step 2: Fill Application Form

Obtain the account opening application form from the chosen DP. This form is typically available online or at the DP's office. 

To complete the application form, you’re usually required to submit necessary documents such as:

  • Pan Card
  • Aadhar Card
  • Bank Passbook
  • Last Six Months Salary Slips
  • Passport-size Photographs

Enter Pan Card details

Enter Aadhar Card Details

Link your bank account details. These details will be used to fund transfer while trading. 

Review and sign the Demat account agreements, terms, and disclosures provided by the DP. 

Step 3: Activate the Demat Account

Once approved, you will be provided with a 16-digit Demat account number (also known as DP ID).

Other details of your Demat account that you’ll receive are:

  • An 8-digit DP identification code.
  • Login ID and Password to your account.
  • An authorization letter (power of attorney document) without which a broker cannot engage in trading with the client. 

Now you have your Demat account all set up!

If you intend to trade in the stock market, you may also need to link your Demat account with a trading account. Many brokers offer both Demat and trading accounts as an integrated package.

How Does a Demat Account Work?

We’re assuming that you’re looking to use your Demat account for trading. 

Well, the good news is that a Demat account makes the trading process all hassle-free for you. You can buy, sell, and hold financial instruments (like stocks) according to your preferences. 

Here’s how a Demat account works:

  1. Create a Demat account or login to buy/sell a specific share.
  1. Place a ‘buy’ or ‘sell’ request in your trading account.
  1. The DP will forward your request to the stock exchange immediately.
  1. In case you put a ‘buy’ request, the stock exchange will search for suitable sellers. Once found, the selected seller will debit those shares from his Demat account and credit it to your Demat account.
  1. In case you put a ‘sell’ request, the stock exchange will look up for buyers. Your shares will then be debited and credited to the buyers’ account.

Please note: In India, it takes upto 2+ days (after trade) for exchanged stocks/funds to be reflected in your Demat account. 

Go Pocket starts with a ₹0 brokerage fee. Create a Demat account today!

FAQs on Benefits of Demat Account

What are the disadvantages of Demat accounts?

Demat accounts may have maintenance fees and transaction charges. Additionally, technology issues or account inactivity may pose challenges. However, these drawbacks are outweighed by the benefits of efficient trading and reduced paperwork.

Can I keep money in a Demat account?

No, a Demat account is for holding and trading securities, not for keeping money. Funds related to trading activities are usually stored in a linked trading account.

What is the minimum balance in a Demat account?

There isn't a specific minimum balance requirement for a Demat account. However, brokers may have their own criteria, and some may charge maintenance fees if the account falls below a certain threshold.

Can we withdraw money from a Demat account? 

No, you cannot withdraw money directly from a Demat account. Withdrawals or transfers of funds are typically managed through a linked trading account connected to your Demat account.

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