Over the years, demat accounts have become a mandatory prerequisite for trading in the stock market. Since share trading is almost exclusively conducted electronically these days, they’re absolutely necessary for the entire process of buying and selling shares to take place smoothly. Even with demat accounts occupying such an important role, many traders are still found to be unaware about the various features of these accounts.
If you’re not entirely sure what feature they possess, then this article is for you. Here are some of the most important features of a demat account.
Dematerialization of shares
This is one of the most important and obvious features of a demat account. A demat account allows you to convert the physical share certificates of companies that you hold into an electronic format. This process is what is known as dematerialization.
All that you need to do to dematerialize your shares is send a request for the same to your Depository Participant (DP) in the requisite form, duly filled, along with the physical share certificates. Your DP will dematerialize your shares and credit them to your account after successful verification.
In addition to dematerialization, a demat account allows you to rematerialize the shares held in your account as well.
A demat account is quite similar to a bank account. The only difference is that instead of holding cash, a demat account holds shares and securities. And much like how you can easily access your bank account through the internet, a demat account can also be easily accessed and operated online. It allows you to keep an eye on your investments and statements through the internet.
When you open a demat account, you’re provided with login credentials, which you can then use to login to your personal account. Since the demat account is electronic and is hosted on the internet, you can access it from virtually anywhere in the world and at any time. All that you need is a device with a working internet connection.
Effortless share transfers
Share transfers from one person to another is exceptionally easy with demat accounts. In fact, this is one of the primary reasons why demat accounts became so popular in such a short period of time. Back when physical share certificates were still in use, share transfers after a successful purchase or sale would take days and sometimes months.
But with demat accounts, the share transfer process is simplified and hardly takes more than two days for you to receive the shares in your account after a successful purchase. That’s not all, transferring shares from one demat account to another outside of the stock exchange is also incredibly simple and can be done electronically.
With physical share certificates, there were plenty of different costs that had to be accounted for. Right from handling charges to stamp duties, a trader had to pay several such costs for every single trade. This not only made the entire process of stock trading cumbersome, but also ate into the profits by increasing the transaction costs considerably.
But thanks to demat accounts, you don’t have to deal with any such ancillary costs at all. The lower costs and simplification of the share trading process continues to be a major beneficial feature of demat accounts.
Share pledging facility
Demat accounts allow the owners to pledge the shares and other securities held in their accounts with a bank or a financial institution as a collateral for a loan. In addition to that, several stockbrokers also allow the demat account owners to use the securities held in their accounts as collateral for margin trading.
Such a feature becomes extremely valuable in times of emergencies as it allows individuals to mobilize funds quickly and efficiently. It also enables them to cut the red tape and reduce the time and effort taken to avail a loan.
Automatic dividend credit
When you open a trading and demat account, you’re invariably asked to link your bank account as well. Since all of these accounts are linked together, any corporate action by the company whose shares you hold in your demat account gets automatically credited to your respective accounts.
For instance, if the company whose shares you own declares a dividend, it gets automatically credited to the bank account that’s linked to your demat account. Unlike during the times of physical share certificates, no action on your part is required to receive the dividend so declared. Similarly, if the company whose shares you own declares a bonus issue, the bonus shares also get automatically credited directly to your demat account.
Conclusion of demat account features
While this list contains some of the majorly important features of a demat account, there are many more beneficial characteristics that these accounts come with. In fact, demat accounts also possess a couple more features like the ability to temporarily freeze the account and transfer shares in odd lots. Demat accounts have actually played a huge role in simplifying the complex share trading process and have immensely contributed to the growing popularity of the stock market.