What is a Demat Account? | Complete Guide for Beginners

Have you begun your investing journey and want to know about the term ‘Demat Account’? Then you are at the right place. In this article, we will discuss the Demat account, what is the importance and how to create a Demat account. Without further ado, let’s get started!        

What is a Demat Account?

A Demat account is an account where you can keep your securities and shares in an electronic format. It was launched in India in 1996 as a substitute for physical shares. A Demat account makes share trading simple and eliminates all the risks associated with the physical shares. 

One can use a Demat account for storing numerous kinds of investments like mutual funds bonds, debt securities, equity shares, ETFs, mutual funds, and government securities. It is compulsory to have a Demat account in India if you want to invest in the stock market.

What is Dematerialisation?

Dematerialization is a process in which your physical shares are transformed into electronic forms and can be easily maintained and used from anywhere. The main aim of dematerialization is to remove the physical shares and the investor to observe and track the properties perfectly.

Before explaining further, if you are new to the stock market, you should join a good stock market course. This course will help you become a smart trader and minimize your loss. Many stock market institutes are available in the market, but The Thought Tree is the best among them. They provide mentorship to their students along with the best study material. 

Significance of Demat Account

If you want to invest in the stock market, it is essential to create a Demat account. A Demat account is just like your bank account, in which you can keep shares and stocks in the Demat account.

A Demat account is like a digital locker where you can keep your stocks, bonds, mutual funds, insurance policies in your Demat account. When you purchase stocks for your trading account, your Demat account gets credited on T+2 days. Just like that, when you sell stocks, your Demat account gets debited on T+1 day. 

How to Open a Demat Account?

After knowing what a Demat Account is, let’s take a look at the procedure of getting a Demat account. When you open a Demat Account, you open one with a central depository like the National Securities Depository Ltd (NSDL) or the Central Depository Services Ltd (CSDL). 

Demat account keeps your investments in an electronic format, and you can easily use it via a laptop or mobile. For accessing it, you will have to create an ID and a password. But, it is not like a bank account, where you do not need to maintain a minimum balance in your Demat Account.

Visit the websites of whichever of the depositories to get a list of DPs to create a Demat Account. Remember that you have more than one Demat Account, but it cannot be linked with the same DP, and you can link one PAN Card with many Demat Accounts.

How does a Demat Account Work?

The stockbroker will credit your demat account with the shares when you purchase stocks. And just like that, when you sell your shares, your account is debited with the shares. While trading online, your demat account will reveal how many shares are sold and how much money is credited to your account.

Characteristics of Demat Accounts

1. The facility of Taking Loans on Your Securities 

NSDL and CDSL, which are the Demat account service providers, offer the facilities of keeping securities that are in your account as a pledge for a loan.  

2. Electronic Transfer of Securities

With the help of an online Demat account, one can transfer the securities very quickly. It makes the procedure of buying and selling shares of companies super fast. Furthermore, transferring the securities from your Demat account to another can be done electronically through Delivery Instruction Slips (DIS).         

3. The facility of Receiving Dividends Directly from the Company 

With the help of a Demat account, you will get the stock dividends and shares issued by companies.

What are the Types of Demat Accounts?

Given below is a list of three different types of Demat accounts:

1. Regular Demat Account

Regular Demat account is for Indian citizens and is offered by depositories like the National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd (CDSL) through stockbrokers and agents.

2. Repatriable Demat Account

A repatriable Demat account is useful for non-resident Indians (NRIs) who want to invest in the Indian stock market. This type of account needs an NRE bank account. And it is like a regular Demat account; it can have joint holders of the account who must be citizens of India.

3. Non-Repatriable Demat Account

Non-Repatriable Demat account is also for non-resident Indians (NRIs). But, through this account, one cannot send funds that cannot be transmitted abroad. This sort of account needs to have an associated NRO bank account, and through this account, NRIs can keep track of their finances.

Benefits of Demat Accounts

  • Quick Access: Demat accounts are electronic so that you can access your account in nature from any corner of the world. 
  • Lesser Costs: In a Demat account, there is nothing like handling charges, stamp duty charges, registration charges. It eventually lowers the costs.
  • Quick Transactions: When Demat accounts didn’t exist, it would take a lot of time to resolve a stock market transaction. By this time, each sort of buy and sell transaction is resolved quickly at the end of the trading day. 
  • Less Risk: Physical share certificates are a risk because they can be stolen, lost, or corrupted. But now, with the invention of Demat accounts, all of these risks can be easily abolished.

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So to wrap up this discussion, I hope that this article was helpful to you. Keep in mind that if you are a novice investor and entering the world of trading, it is essential to get a sound understanding and work on a Demat account. 

If you want to begin trading in the stock market, opening a Demat account is very important. So, now after reading this article, I hope you understand What is a Demat Account and How to open it. After creating a Demat account, you can start your trading journey straight away. If you have any questions please comment down below. 

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