As people start to realize the advantages of having a demat account, the number of new demat accounts are on the rise. Here is all that is special about demat accounts.
What are demat accounts?
A demat or dematerialization account is an account designed to hold one’s shares and securities in electronic form. The term ‘dematerializing’ refers to the process of converting physical share certificates into electronic form, where they can be easily stored and traded. Naturally, the hazards associated with physical certificates are no longer a threat with demat accounts. Demat accounts can hold all the different varieties of investments like shares, mutual funds, exchange-traded funds and even government securities.
Now, there are three types of demat accounts one can open:
- Regular Demat Account: A regular demat account is for investors residing in India.
- Repatriable Demat Account:A repatriable demat account, on the other hand, is an account for non-resident Indians (NRIs). They are required to be linked with a NRE (non-resident external) bank account and allow transfer of funds to foreign countries (a service that regular demat accounts don’t offer).
- Non-Repatriable Demat Account:A non-repatriable demat account is also exclusively for non-resident Indians (NRIs). The only difference is that they cannot make fund transfer abroad possible. Furthermore, it has to be associated with an NRO (non-resident ordinary) bank account.
How to open a demat account?
Opening a demat account is the first step for every investor. Here are the steps to open a new demat account.
- In order to open a demat account, the first step is to choose a Depository Participant (DP). Any financial institution registered under SEBI can be a DP. It can be a bank, stockbroker or a non-banking financial company. Let us go forward assuming that you select Angel One, one of the oldest brokers in India.
- Now, you need to fill up a form available at the DP’s official website. Here, you will need to submit various KYC documents as proof of identity, proof of address and proof of income.
- Next up, your documents will be verified in person to ensure their authenticity.
- You will be provided with a set of guidelines on ethical and legal trading. You will have to sign the agreement before moving forward with your Angel One new demat account.
- Once the above-mentioned processes are completed, your Angel One account openingwill be successful. You will now receive a Unique Identification Number that will allow you to login to your Angel One new account.
Benefits of demat accounts
There are multiple benefits of owning a demat account, which is why it’s becoming so popular. Here are some of the benefits of owning a demat account.
01. Less risks
With paper-based physical certificates, there are multiple things that can go wrong. The share certificates could be misplaced, in which case the police need to be involved. Furthermore, there are also various threats of fraud and theft that physical share certificates face because of the probability of forging signatures. All of these problems are taken care of with demat accounts, which act as a safe electronic wallet for all your shares and holdings.
02. Transfer of shares
Share holdings of a deceased person are always transferred to either the legal heir(s) or the nominee. With physical share certificates, the process of transfer was lengthy and complicated. However, demat accounts allow this transmission to be smooth. Beneficiaries of the shares of the deceased person can simply fill up forms and submit documents online to get the shares to their own name.
03. Quick dematerialization
Before the existence of demat accounts, trades would take around 2 weeks. However, demat accounts have made it easier to convert your physical share certificates to electronic securities and vice versa. The process of converting a physical shares certificate to their electronic form is called dematerialization. On the other hand, the process of converting the electronic securities to paper-based forms is called rematerialization. With demat accounts, both these processes take merely a few days.
04. Hassle-free liquidation
With demat accounts and the easy online accessibility they offer, liquidation isn’t a big deal. Demat accounts allow investors to sell shares on exchanges within just a few seconds. This is unlike the olden days when one’s broker had to physically find a buyer. Thus, financial emergencies can be dealt with more promptly.
05. Sell securities for loan
You can even use demat accounts to sell your securities and use them as a collateral to avail a loan. Most banks approve instant loans against securities held electronically, as in with demat accounts.
06. Low cost
With physical share certificates, there were additional charges while transferring shares. These included high stamp duty charges and other paperwork costs. By going digital with deMark as H1mat accounts, all of these costs come down significantly. Lower costs gives investors the freedom to trade according to their strategy, without worrying about the additional costs.
07. Access to updated market information
Demat accounts give investors access to useful market information that can form their investment strategies and help them take well-informed decisions. The live market price charts and the different comparison tools can be really useful to make the maximum out of your investments.
08. No minimum trading requirements
A demat account doesn’t have any regulations regarding minimum balance. Neither does it have any rules obligating investors to make at least a minimum number of trades. This is especially great for long-term investors as they can freely remain invested for a long horizon without worrying about such regulations.
09. Updates on corporate action
If the company you’re invested in makes any changes to its stock, the centralized system of demat accounts will immediately notify you. Be it a bonus issue, stock-split or anything else – the information will get automatically updated in your demat account. This makes it extremely easy for investors to track the actions of the company they are invested in.
10. Freeze the account
Demat accounts have a number of features in place that ensure premium security to account holders. So, in case the account holder notices any unnatural activities, they can immediately freeze their account for a specific duration. For account holders to be able to do this, they are required to hold a specific quantity of securities in the account.
11. Multiple access options
With demat accounts, you can access your shares from a number of different media. All operations such as trading, investing and transferring of shares can be done through a computer, laptop or even a smartphone.