Demat account is an account to hold your shares and securities in electronic form. The shares and securities get credited or debited whenever a transaction takes place. To simplify the meaning of the demat account, you can think of this account to be similar to a bank account that holds your money. In the demat account, the money gets replaced with shares and securities.
The Securities and Exchange Board (SEBI) of India has made it mandatory for the investors to open a demat account to transact in the Indian financial market. The reason for it is that the demat account is cost-effective, safe and convenient. By holding the shares and securities in electronic form, the risks relating to theft, loss and mutilation of share certificates do not exist. Moreover, transacting through the demat account is a paperless task which makes it even more convenient and cost-effective.
Using a demat account is very simple and easy. To operate a demat account all you need is an active internet connection and login id. You can open a demat account by visiting a stockbroker or Depository Participant (DP).
The first step towards opening a demat account is selecting a DP or stockbroker. A DP acts as an intermediary between you and the depository. You must fill the account opening form and submit the necessary documents like PAN card, identity proof, address proof, passport size photograph, etc. to the DP. An agreement copy would be handed over to you by the DP consisting the charges, rules and regulations. Now, an in-person verification shall be carried out to verify the details submitted by you. On successful verification of the application, you will be provided with a client id and demat account number. You can log in to your demat account to buy or sell shares and securities.
Along with the demat account, you also need to open a trading account. With this trading account, you can carry out buying or selling of shares. When you purchase or sell a stock using the trading account, it takes T+2 days for the stock to get credited or debited into the demat account. The broker will transfer the shares into your demat account if the amount of purchase is paid by you before the stipulated date.
Another important question that might come to your mind is that is it possible to trade in shares without opening a demat account. In this section of the article, we will clarify this doubt.
When you purchase shares on delivery basis it is mandatory to have a demat account to store that purchase in the electronic form. Moreover, it is not easy and feasible to buy or sell shares in physical form. In addition, the number of dealers willing to purchase or sell shares in physical form is very low. Therefore, opening a demat account is compulsory when there is delivery of shares. However, while trading in derivatives, exchange-traded funds, currency and commodities, it is not compulsory to open a demat account. This is because they do not involve delivery of stocks and settlement is done on cash basis.
Demat account is the primary requirement for purchasing shares. If you want to open a demat account, you can contact Kotak Securities. We are the number one broking firm in India and provide hassle-free services to the clients at affordable rates.
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