So finally, you have decided to start trading or investing in shares or upcoming IPO’s?
Now, the next step is to know about the most important aspect of trading–Yes the “Demat Account”.
You will be familiar with this terminology if you trade in stocks as every trading requires a Dematerialization (DEMAT) Account.
Such type of account is opened by investors while registering with a brokerage firm to facilitate electronic and paperless settlements of trades. A single Demat Account can take care of all your online trading.
Documents required for opening a Demat Account include photo ID and address proof such as a Voter’s ID/ Passport/ Ration card / Aadhar Card/ Driver’s license, Bank attested Statement/ Passbook, Electricity/ phone bill, and a passport size photograph.
Let’s quickly go through the other Benefits of Dematerialization (DEMAT) Account at a glance.
Advantages and Uses of a Demat Account
An Essential Instrument
With a Demat Account Transfers and purchases of stocks or shares can then be initiated with ease. It is just like a bank account in which the money used to purchase shares is debited. In simple words, as we need a bank account if we want to deposit money and make payments similarly we need a Demat Account if we want to pursue trading.
You are required to submit the photocopies of the documents along with the Demat application form. Remember, to nominate someone while you open the Demat Account as we do while we open a bank account.
As a salary account, a Dematerialization Account can be opened with zero balance of shares and there is no minimum balance to be maintained either.
Simple and Secure
After opening a Demat account, you will be allotted a Unique Identification Number (UIN), which will be required for all future transactions i.e. while buying and selling shares. It can be opened with any nationalized and private bank or with brokers and financial institutions.
If done with proper analysis, share trading can be lucrative and a Demat Account makes transactions related to it simple, safe and secure.
A Demat account is an electronic gateway that facilitates trading and is far safer than the old day’s paper-shares with physical certificates, which involved risks of mishandling, delivery issues, thefts, records maintenance, etc. This also leads to reduced paperwork for buying and selling of securities.
Odd Lot –No Problem!
Another benefit of a Demat account is that it reduces transaction costs immensely and keeps you away from the ‘odd lot’ problem, through which, even a single share can be sold.
With conventional physical certificates, buying and selling required specified quantities. The option and convenience of dealing with odd lots or single security were not available but the modern age Demat accounts eliminated this issue for good.
A single Dematerialization (DEMAT) account can hold investments in both equity and debt instruments. Traders have the choice and comfort to work from anywhere; your home or office.
Cost and Time Efficient
Earlier, physical certificates in trading involved and attracted several additional costs, such as stamp duty, handling charges, etc. A Demat eliminates them due to technological advancement in the field of Banking and Trading.
Due to the elimination of paperwork and other verification formalities, the time required in completing a transaction gets reduced.
Loan Facility against Securities
Several financial institutions and lenders provide loans against securities that are computed via a Demat account. These holdings are used as collateral security to avail easy loans by the account holders.
Rest or Grace Period
If required, Demat account holders can freeze or keep their accounts inoperative for a certain period without being liable for any penalty.
Better Portfolio Management
A Demat account makes financial planning, monitoring, and tracking of your investments, gains, and losses much easier and flexible. With an online Demat account; you can easily track the performance of your portfolio across different investment products and make modifications accordingly.
Timely Notifications and Alerts
Timely notifications and alerts via a Demat account help us in taking prompt and timely decisions to maximize our profits and minimize the chances of loss from your investments.
As per the latest norms and regulations, buying and selling equities in physical form is no longer allowed. Therefore, if you want to buy or sell stocks, you will need a dematerialization account.
Remember, it’s better to learn all the risks involved before you start investing in stocks.