What Is Demat Account – Demat Account Meaning
In India, stocks and securities are kept electronically in a Demat account (also known as dematerialized account) instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker or sub-broker.
A demat account is very necessary for dealing in shares and ETFs. Since from last decades or so, the share market has advanced to paperless trading. For investors, the stock certificates were always a mess to manage, now a demat account eases every problem and has become a necessity.
Not having a depository or demat account has turned out to be the biggest entry barrier to investing in stocks. It is no wonder that everyday more and more commodity’s futures and spot market are moving to the dematerialised form of trading.
How Demat Account Function
A depository is quite similar to that of a bank. However, It holds stock that is purchased by an investor, in an electronic form.
The investor has to open an account with the depository, via a DP. The Depository Participant is an intermediate between the depository and the investor. In our country India, there are two depositories, National Securities Depository and Central Depository Services. Banks such as HDFC Bank, ICICI Bank, SBI, etc. act as broker and India Infoline, Motilal Oswal, Indiabulls and Share Khan institutions function as DPs.
The stocks purchased and traded by you is shown in your demat account. Any stocks you are holding in paper form can also be dematerialised and added to your demat account. Indian stock exchanges have also facilitated buy and sale of mutual fund schemes on the exchange.
The DP, on a regular basis, deliver you with an account statement displaying the balance of stocks in your demat account and transactions during a particular period.
If you have demat account, it will give you an opportunity to invest in different asset classes. Such as gold, ETFs, commodity futures, etc.
How To Open a Demat Account
You can open a Demat account with any financial institutions and bank or with any brokers. Normally, banks provide attractive rates for a demat account since you also have a savings account with them. However, if you still wish to go for online stock trading, it will be more convenient for you to open a DP account and trading account with the same broker or banks.
The fees and charges may vary according to the service you opt for.
Closing a Demat Account.
In some case if you don’t wish to use your account, you must close it at once. Since your account can be also used for fraudulent purposes. To close your account you are required to submit an application with the DP. You also need to return all unused delivery instructions slips and settles off all the dues. A demat account can be closed only if there are no stocks in it.
A demat account holds shares in an electronic form, thus preventing from holding shares in paper form.