What is a Demat Account?
Similar to a Bank account which holds Money, Deposits etc, A Demat account is the account which holds Shares, bonds, government securities, mutual funds and exchange traded funds (ETFs) in electronic forms.
Demat account is introduced in 1996 and before that Stocks were traded in the “Ring”, Traders shouted their prices to buy or sell; once the trade was executed, money was exchanged for share certificates. Settlements took a lot of time because of huge amount of paper work involved in manually keeping a track of shares sold/bought and later settlement of these transactions.
Thanks to technology we moved to a digital age and everything turned electronic.
The benefits of demat are as follows:
- It is a safe and convenient way to hold securities.
- Risks associated with physical certificates such as bad delivery, fake securities, delays, thefts, etc. are eliminated.
- The bonus/right shares allotted to the investor will be immediately credited into his account.There is no risk due to loss on account of fire, theft or mutilation. Transaction costs are usually lower than that in the physical segment.
- There is a major reduction in paperwork involved in transfer of securities, and reduction in transaction cost, etc.
Is a demat account a must?
Nowadays, practically all trades have to be settled in dematerialised form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more.
So a demat account is a must for trading and investing.
Whom to approach for opening a demat account?
You can open a demat account with any depository participant. So, technically any bank or share brokerage company which is a registered Depository Participant (DP) with NSDL or CDSL can open demat account for their clients.