Before the introduction of computerized systems in trading, investors used to follow the trading process through paperwork and personal or phone orders. Later, online trading took over the lengthy and time-consuming process. Thus, the concept of the Demat account emerged.
Why do I need a Demat account?
Demat account (dematerialized account) allows the traders to hold their shares, mutual fund investments, exchange-traded funds, and bonds at one place in an electronic form. Demat account is for holding securities only.
For trading, you require an online trading account, a bank account, and a Demat account. All three accounts work in integration for helping trade seamlessly.
How to Trade with a Demat Account?
- After opening a Demat account, link it to your online trading account. Add money from your bank account to your trading account. To start the trading, place an order through your trading account. The order is forwarded to the stockbroker. Your stockbroker then forwards the order to the relevant stock exchange, which processes your order and instructs the clearance house to debit or credit the requested number of shares from/to the respective Demat account.
- If you are investing in an IPO, then you can directly get the shares in your Demat account (without a trading account). This is because you only buy the shares in an IPO. However, you will need a trading account, to sell shares in the secondary market.
Benefits of Demat Account
Apart from holding shares in an electronic form, for an investor, Demat account is essential because:
- Holding physical shares and investment documents involve the risk of misplacement or damage. The use of a Demat account reduces these risks.
- A single Demat account retains multiple investments such as shares, mutual funds, bonds, government securities, initial public offerings (IPOs), exchange-traded funds, index and gold, non-convertible debentures.
- When a company issues bonus shares, dividends or refunds, stock split to its investors, all these get deposited to their Demat accounts, automatically.
- Securities deposited in your Demat account act as collateral to get a loan from the bank.
Benefits of Trading with a Demat Account
- Demat Accounts have made trading faster, simpler, and convenient. However, other benefits of opening a Demat account are:
- A Demat account gives quick access to your investments anytime, anywhere on any electronic device (personal computer, smartphones).
- Buying, selling, and transfer of shares become more comfortable with the help of a Demat account.
- An investor can freeze particular securities in his/her Demat account for a specific time. Freezing the account stops the transfer (Credit or Debit) into the Demat account.
- Demat account is cost-effective as the transfer of shares happens digitally which eliminates postal charges etc. associated with physical share transfer.
- You can get updates about the securities in your account using your Demat account.
- With the help of a Demat Account, you can re-materialize or dematerialize securities as per your needs into different forms.
- Many foreign investors can invest in the Indian market using Repatriable and/or Non-repatriable Demat.
List of Documents Required
Following documents are required for trading and Demat account:
- Proof of Identity (Aadhar Card/ Passport/ Voter Id card etc.)
2. Proof of Address (Utility bills/Passport/Ration Card/ Voter Id card etc.)
3. Bank proof:- A canceled cheque, Passbook copy
4. PAN Card
5. Passport size photographs.
After document verification, your Demat account gets activated. It depends on your broker. It may take from a few hours to up to 48 hours to activate your Demat Account. Many times, the verification process gets completed in four hours. When your Demat account is enabled, you can start trading.