A Demat account makes investing processes easy and fast and facilitates investors and traders on several investing tracks
Individuals interested in the stock market must be familiar with the accounts required for online trading. The trading system in the stock market involves dematerialised securities in the stock exchange. Therefore, a Demat account is mandatory to participate in the stock market. Let us understand a Demat account and its benefits for investors and traders.
Demat Account – What Exactly is it?
A dematerialised account, abbreviated as a Demat account, is an online repository. It is a mandatory account to invest in most securities in the stock market. It holds financial assets, including equities, mutual funds, bonds, currencies, commodities, government securities, etc. The National depositories – NSDL and CDSL – provide Demat services through their registered agents, known as the Depository Participants (DPs). You can approach a registered DP offering free Demat accounts with affordable brokerage plans.
Inspiring Factors to Open a Demat Account
The rising number of Demat accounts in India shows that more individuals are looking beyond traditional investments and benefitting from Demat accounts. Here are the key advantages of opening a Demat account:
Fast Transfer of Shares
A Demat account makes investing processes easy and fast and facilitates investors and traders on several investing tracks. Whether investing in IPOs, trading processes, transmitting shares, or receiving corporate benefits, the Demat-based trading system makes everything electronic and fast.
Ensure Security
Using Demat accounts, investors can invest with added safety and convenience than paper-based certificates. Demat-based investing is immune against issues like damage, theft or misplacing securities.
Easy Storage
A Demat account allows investors to hold diverse financial assets. Whether it’s mutual fund units, equities, bonds, exchange-traded funds, commodities, currencies, or others, your single Demat account can hold them for as long as you want to maximise returns. You should open a regular Demat account for an unlimited storage facility.
Loan Against Security
Your Demat securities can help you when you are going through financial trouble. Various financial institutions facilitate investors with a loan against securities. You can avail of the required funds by pledging financial assets in your Demat account, just like a secured loan. The ownership rights to those pledged securities will remain with you. Also, you will keep receiving the earnings from dividends, bonuses, splits, and rights.
Margin Trading Facility (MTF)
The Security & Exchange Board of India (SEBI) allows clients to pledge their Demat shares for margin trading. Intraday trading provides the benefit of margin trading. However, those investing for the long-term through delivery trading can take leverage through Margin Trade Funding (MTF). It increases potential profits by improving the purchasing power of their available fund at a point in time. You can consider discount brokers offering a margin for as long as 365 days at low-interest rates.
Cost-effective
Unlike the outcry trading system, you can save on stamp duty and high brokerages in the Demat-based online trading system. Discount brokers offer free Demat accounts and charge lower brokerage.
Trading Limits
The shares present in the Demat account can be pledged to avail of trading limits. In this, shares will be kept as a mortgage and trading amount will be provided in lieu. A certain portion of the share price will be deducted as a ‘hair cut’, and the remaining will be credited as a trading limit. This amount is non-withdrawable and can only be used to take trading positions. This process is also called share pledging.
Immediate Accessibility to your Portfolio
You can track the performance of all your financial assets on a single window in your Demat account. The account facilitates easy monitoring of all your financial assets from the comfort of your home.
Freezing and Unfreezing Facility
Demat accounts allow you to freeze the activities for a period as per your need. If you want to take a break from trading, you can opt to freeze your Demat account. You will keep receiving capital gains.
Automatic Credit of Corporate Actions
Stock investors can receive dividend income, interest, split, right shares, and other corporate benefits automatically without delay. Even if you have accessed the freezing facility of a Demat account, you will continue to receive the benefits.
Easy access to transact
A Demat account gives you the benefit of liquidity. It is easy to place sell order for securities when you have a Demat account. You can place a sell order for your Demat securities c on the stock exchange.
Off- Market Transfer
With Demat Account, shares can be transferred without going through the exchange route. For example, if you want to gift shares to your family member, you can follow the off-market transfer process and pass on the shares conveniently.
Conclusion
Demat accounts facilitate investors with numerous advantages that inspire more individuals to participate in the stock market. Capitalise on stock market opportunities without hassle. You can open a Demat account following a 100% digital process.
Investments in securities market are subject to market risk, read all the related documents carefully before investing.
