How to Use a Demat Account?

The introduction of demat accounts has made investing much easier and more accessible for people than ever before. Unlike traditional methods, you do not need to hold financial securities in physical formats such as paper certificates. All your investments are stored digitally, which is more convenient, safe, and easy to transact. In addition to this, you also get easy asset management, buying and selling stocks, cost savings, reduced risk, and lower transaction settlement time.

At the same time, many people are still wondering: What is a Demat Account, and what is the use of it? To answer that, it is essential to demystify the complexities of opening, maintaining and using a Demat account. In this blog, we will find answers to all your queries related to a Demat account. 

What is a Demat Account?

In the simplest terms, a Demat account is very much similar to a bank account. The most basic difference between the two is that the former holds stocks, bonds, and other securities. Whereas, the latter one is used to park money.

It is a digital account where you store your financial securities in an electronic format. Until the Demat account was introduced, the standard practice was to hold securities in the form of physical certificates. With the emergence of this service, dealing with financial securities has become much easier. A demat account simplifies the process by securely holding all investments in electronic format. It has eliminated the hassle of extensive paperwork and various risks involved with physical certificates. Read further to understand the use of a demat account in detail.

What is the Use of a Demat Account?

A Demat account is used to keep stocks, mutual funds, bonds, government securities, ETFs, and other financial securities in electronic format. Besides this fundamental feature, the demat account makes the lives of investors easier in the following ways: 

1. Efficient Storage of Securities: Unlike the traditional method of paper certificates, your securities are safely kept in digital format. Thus, you do not have to worry about the loss, theft, or damage of the certificates.

2. Simplifies the Trading Process: Earlier investors had to deal with lengthy paperwork and complex procedures for the buying or selling of stocks. Now, you can execute these transactions within seconds by linking your trading account with your Demat account.

3. Portfolio Management: Another significant advantage of the demat is that it makes the portfolio management process easier. You can monitor your holdings across different asset classes with ease in real time. It gives you a better chance to be aligned with the market and make informed trading decisions. 

4. Reduced Trade Settlement Time: Technology has eliminated the hassle of delayed transactions. With a demat account, you can buy or sell stocks in no time. Trade settlement times have reduced significantly, leading to increased liquidity. 

5. Access to Additional Services: Besides basic benefits, you get additional services like pledging of shares. You can borrow funds to trade by pledging shares as collateral.  Additionally, corporate actions, such as dividends, bonus shares, etc., are directly reflected in your account.

How to Use a Demat Account?

Using a demat account is effortless. However, those unfamiliar with the procedure might find it a little tricky. So, here are the steps that will demonstrate how you can use a demat account easily.

Step 1: Open an Account: To use it, first you will have to open a demat account. You will need to choose a Depository Participant (DP) and fill out and submit a demat account opening form along with all the required documents. The form will require you to provide basic information like personal details, bank details, and other mandatory details.

Step 2: Complete the Verification: Once you have submitted the form and other documents, the DP will verify it. Upon successful verification, the Demat account is activated, and you get your credentials. It is your identification number as an investor. After these procedures, you can simply log in to your account. You should remember that the Annual Maintenance Cost (AMC) must be paid to DP to maintain a Demat account. 

Step 3: Get Familiar With the DP platforms: You can access the holdings in your Demat account through the DP’s website or mobile application. Usually, DPs provide basic guidelines to help investors navigate their platforms. You should go through those manuals to get familiar with the user interface and functioning of the platform.

Step 4: Start Investing: You are just one step away from starting your investing journey. In this regard, you will require a trading account and your demat account. Usually, a trading account and a demat account are created simultaneously. Investors can place orders on the exchange using their trading account. Upon successful execution of the orders, the shares or securities are either credited or debited from the Demat account. 

Can I Trade Shares Without a Demat Account?

The standard market practices have turned digital now, and today, it is not possible to trade without a demat account. The securities are held in a Demat account digitally, making it easier to buy and sell securities. Also, it is difficult to find buyers and sellers willing to deal with physical certificates. However, there are some exceptions. Many government-backed securities do not require a demat account if they are bought directly from the issuing authority. Additionally, trading commodities, derivatives, and currency do not mandatorily require you to have a demat account as these asset classes don’t require you to take delivery and are cash-settled.

Cost Involved with a Demat Account

There are certain charges associated with demat accounts. The costs can vary across institutions or brokers. Here are a few points that you can consider before choosing a platform:

Account Opening Fees

Similar to any standard account opening process, some brokers charge some amount as an account opening fee. However, many brokers waive it to attract more customers.

Annual Maintenance Fees

DPs usually charge an annual maintenance fee to keep your account active and provide other services. This fee can vary based on the DP.

Transaction Charges

These charges depend on the type of transaction and vary across different DPs.

Pledging Fees

If an investor decides to pledge shares as collateral for a loan, some brokers may charge a fee for the process.

Why is a Demat Account Necessary?

To align with the modern stock market pace, having a demat account is necessary. It not only gives you ease of transaction but also provides security to the securities. Electronic storage eliminates the risk of loss or damage to physical certificates, ensuring a secure, long-term holding.

Also, you do not have to rely on human intervention to fulfill the transaction. It eliminates unnecessary delays and gives you an enhanced overall investing experience. Another impeccable feature of the Demat account is that you can manage all your investments through one platform. From stocks and bonds to mutual funds and government securities, a demat account supports various financial products, providing a safe storage to investor’s broad spectrum of asset classes.

Conclusion

Considering the technological advancement and continuous digitization of the financial world, a Demat account is definitely invaluable. It keeps you aligned with modern-day investment practices, gives you a real-time monitoring facility, and a smooth investing experience. With an accurate understanding of how to use a demat account, you can manage your investments without any hassle.

So, get yourself adequate knowledge, get comfortable with the Demat account, and start growing your money like never before.

Frequently Asked Questions (FAQs)