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What Is A Demat Account?

With the advances in technology, everything is improving. The Indian economy is also adapting paperless transactions. If you are looking to invest in the stock market to buy shares, bonds or a mutual fund, you can do it seamlessly through a Demat account. A Demat account is a must have for traders who intend to participate in stock trading by buying and selling shares. It is a commonly used term in the trade. And people who are amateurs and aspire to become traders should understand the importance of opening a Demat Account. But to be able to understand the importance of it, one must first know what it means. So, what is Demat account?

In India, Demat Accounts were first introduced in the year 1996. It was done after the introduction of the depository system by the Depository Act of 1996. It is compulsory for a person to own an active Demat Account with an investment broker linked to a savings or other funded account if the individual in question wants to participate in the stock market trading. The word ‘Demat’ is the informal short word for ‘Dematerialized account’ which is sort of an account where shares and securities are held electronically to enable trading transactions & settlements in the stock exchange. The presence of a Demat Account eliminates the need for a physical monetary instrument. 

Any individual who is interested in the stock market and needs to open a Demat Account should approach a Depository Participant or DP. The DPs act as the intermediaries between the traders or investors and the depository. A DP has to be registered with the Central Depository Services Ltd. (CDSL) and the National Securities Depository Ltd. (NSDL) of the country. In simpler terms, the DPs are basically the stockbroking firms, bank or sub-broker, etc. To avail the benefits, you need to be registered with them. 

The process of opening a Demat Account is not very complicated at all. You simply need to fill a form and make sure that you have your identity proofs and other necessary documents available for the verification process. Once the verification process is completed, the trader is then provided with his credentials and transaction password for the account. After this, the process of the transaction can be initiated. You can also operate the transaction of buying and selling of shares on your own or through a broker, personally or online from your Demat account. And yes, it is possible for a person to hold more than one Demat account.

There various features of the Demat account that are extremely beneficial. Viz, Easy accessibility and mobility when it comes to stock trading. Once the process is complete there can be quick and easy transferability of securities. It is all the more convenient since there is no stamp duty is charged during the transfer or dematerialization process. Having your securities saved in an electronic form in a Demat account protects you from fraud and theft related problems. There are many such benefits that can be enjoyed if you have an active Demat account. But keep in mind that, trading in the share market using a Demat account comprises of inward and outward brokerage, the brokerage may differ from broker to broker and it also depends on the type of trade you participate in on whether intraday trade or delivery trade. So, while opening a Demat Account, check the charges such as brokerage fees, annual maintenance charges, and transaction charges and also make it a point to check the quality of services such as trading platform, online and phone orders, etc. 

To cut the long story short, a Demat Account is a perfect solution to avoid the frustration that comes with the paperwork associated with the buying and selling of shares. So without wasting any time, open yourself a Demat account and start the trading process today.