What is Demat Account? It's Meaning, Types & Features

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  • 04 Dec 2023
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Key Highlights

  • A Demat account is an electronic repository for holding securities in dematerialised form.

  • It allows investors to hold securities such as stocks, mutual funds, bonds, in digital format. So, it facilitates easy and secure trading.

  • Features of the Demat account include easy share transfer, collateral for loans, temporary freeze, corporate action benefits, and convenient asset holding.

  • Demat accounts offer secure storage of various securities and enable efficient trading and settlement. You can access your investments from anywhere online and track them conveniently.

Here is why you REALLY need a demat account!

  1. You cannot buy or sell stocks without a demat account
  2. You cannot invest in equity directly without it
  3. Mandated by SEBI for transactions of listed company securities

A Demat account—short for dematerialised account—is an account that allows you to hold company shares and securities electronically. You can hold dematerialised securities such as stocks, mutual funds, bonds, exchange-traded funds (ETFs), etc. in a demat account. So when you place an order to buy a stock, the shares get credited to your demat account. Similarly, when you choose to sell your shares, they get debited from your demat account.

You can choose to open demat account or a 3-in-1 account that links your trading and bank accounts too.

This enables you to trade without the need to move physical share certificates. Not only is it a storehouse for your investments, but it also speeds up transactions and reduces costs. Of course, there are more benefits of demat accounts too.

Dematerialisation, often referred to as "demat," is the process of converting physical share certificates and other securities into electronic or digital form. It involves the transformation of physical documents representing ownership of securities into electronic records. Dematerialisation allows investors to hold and transact securities in a paperless format. This process has streamlined and simplified the trading and settlement of securities, eliminating the risks and inefficiencies associated with physical certificates.

The Demat account offers the following features.

Easy Share transfer: All you have to do is move your shares and give your depository participant a signed Delivery Instruction Slip (DIS).

Collateral for loans: You may use your assets in a Demat account as collateral if you want a loan from a financial institution.

Temporary freeze: You can put your Demat account on temporary hold for a certain amount of time. But usually, you can only use this option if you have some shares in your account.

Corporate action benefits: Benefits like dividends, bonus shares, stock splits, interest, and refunds may be transferred quickly with the best Demat accounts.

Speed e-facility: With NSDL, you can electronically transmit instruction slips to your depository participant.

Convenient asset holding: Holding physical certificates is risky and time-consuming. By digitising the certificates and opening a Demat account, you may retain them more easily and securely.

Multiple Access Points: Demat accounts are entirely digital. So, they may be accessed by any digital device, including smartphones, PCs, and other smart devices, from any location.

One of the biggest benefits of demat account for investors is that it is digital. Having said that, there are many other advantages of demat accounts that can be listed as follows.

  1. Security Of Shares: The most crucial benefit of a Demat account is that it is safer than holding physical shares which can get lost, damaged, or stolen.

  2. No Forgery Or Theft: Since the Demat account is electronic in nature, the risk of documents getting stolen, damaged, or lost does not exist.

  3. Efficient Trading and Settlement: Demat accounts streamline the process of buying and selling securities by enabling electronic trading and seamless settlement. It eliminates paperwork and physical delivery. This reduces transaction time, making trading more efficient.

  4. Lower Cost: Physical share certificates attract paperwork and stamp duty, which increases costs. With a demat account, all this is eradicated and you can get a demat account in no time.

  5. Multiple Access Points: A demat account is operated electronically, which essentially means that users can access the account from multiple touch points—mobile, tablet, PC, laptop, etc.

  6. Easy and Secure Holding: With a Demat account, investors can hold their securities in electronic form, eliminating the need for physical share certificates. This makes it convenient to hold financial assets.

  7. Online Access and Monitoring: Demat accounts can be accessed online, allowing investors to monitor their holdings, track portfolio performance, view transaction history, and generate statements. It provides real-time information and easy tracking of investments.

  8. Quick and Convenient Transfers: Transferring securities from one Demat account to another is hassle-free, ensuring smooth ownership transfers. It simplifies estate planning, gifting, and transferring securities to heirs.

  9. Loan and Margin Facilities: Demat accounts allow investors to pledge their securities as collateral for loans or margin trading. It provides opportunities to avail funds against securities without liquidating the holdings.

Overall, Demat accounts enhance the efficiency, convenience, and security of holding and transacting securities in the modern digital era. Here’s another benefit of Demat account—one that you can get only with Kotak Securities.

With a 3-in-1 account, your trades can get more seamless since your bank and trading accounts are linked with the demat account! Know more here

The are many benefits of a Demat account. However, it’s crucial to understand how it works. A Demat account functions as a digital repository for holding and trading securities. It allows investors to convert physical certificates into electronic form, facilitating seamless transactions and eliminating the need for paper-based processes. Investors can access and manage their holdings online, making them convenient and secure.

There are primarily two types of Demat accounts:

  1. Regular Demat Account: This type of Demat account is suitable for individual investors who want to hold and transact securities for personal investments. It is typically opened by retail investors and provides access to a wide range of securities, including stocks, bonds, mutual funds, and government securities.

  2. Repatriable (NRI) Demat Account: This type of Demat account is designed for Non-Resident Indians (NRIs) who wish to invest in the Indian securities market. It allows NRIs to hold and manage their investments in India, including stocks, mutual funds, and other permissible securities. Repatriable Demat accounts facilitate the easy repatriation of funds back to the NRI's foreign bank account.

The choice of Demat account type depends on the investor's residency status and investment objectives. Other specialized types of Demat accounts may also be available to cater to specific investor categories, such as corporate entities, institutional investors, or foreign portfolio investors (FPIs).

The documents required for Demat account opening are an account opening form, identity and address proofs, and a passport-sized photograph.

  • Proof of identity (Aadhaar Card/Passport/Driver’s License)
  • Proof of address (Ration card/Passport / Rent Agreement / Recent Electricity or Telephone Bills)
  • Income proof (Income Tax Return/Salary Slip)
  • PAN Card
  • Photographs

You’ll get the full list of documents accepted for account opening here.

Opening a Demat account can be very simple and requires minimal paperwork. Here’s how you can open a Demat account. To open a Demat account, follow the simple steps below:

  • Step 1: Fill the account opening form
  • Step 2: Submit documents
  • Step 3: Finish the in-person verification (IPV)
  • Step 4: Get an account number/ID

You could also opt for a digital demat account where the entire application process is online. The steps are similar: Fill in the application form, upload scanned copies of your documents, and complete the IPV. The only difference is that it all happens through digital channels!

When opening a Demat account, there are a few important points to keep in mind:

  1. Choose a Reliable Depository Participant (DP): Select a reputable DP, such as a well-established bank or trusted brokerage firm, to ensure the safety and reliability of your Demat account.

  2. Understand the fees: Familiarise yourself with the account opening charges, annual maintenance fees, transaction fees, and other charges associated with the Demat account. Compare these charges among different providers to make an informed decision.

  3. Check the Services and Offerings: Assess the range of services provided by the DP, such as online access, customer support, research reports, and additional features. Ensure that the DP meets your requirements and provides the necessary tools and resources for managing your investments effectively.

  4. Review the Terms and Conditions: Carefully read and understand the terms and conditions, rights, and obligations associated with the Demat account. Pay attention to clauses related to account closure, account freezing, or any restrictions that may affect your investment activities.

  5. Complete Documentation: Ensure that you provide accurate and complete documentation required for opening the Demat account. This typically includes identity proof, address proof, PAN card, and other relevant documents as specified by the DP.

  6. Keep Account Credentials Secure: Once you receive your Demat account details and login credentials, safeguard them securely. Treat the account credentials with the same level of security as your banking login details to protect your investments.

By keeping these factors in mind, you can make an informed decision while opening a Demat account and ensure a smooth and secure experience managing your securities electronically.

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FAQs on What is Demat Account

A Demat account is used for electronically holding and transacting securities such as stocks and bonds, eliminating the need for physical share certificates.

Demat accounts may have associated fees depending on the service provider, but some offer free or low-cost options.

An example of a Demat account is provided by financial institutions like banks or brokerage firms, where investors can open accounts to manage their securities in electronic form.

There are two main types of Demat accounts: Regular Demat Account for residents and Non-Resident Demat Account for non-residents.

No, you generally cannot buy shares without a Demat account, as it serves as the electronic repository for holding and trading securities in the modern financial system.

Demat, short for dematerialization, is the process of converting physical share certificates into electronic form. A Demat account holds these electronic securities and facilitates the buying, selling, and transfer of shares securely and conveniently.

Any individual or entity wishing to trade or invest in securities such as stocks, bonds, mutual funds, or other financial instruments in electronic form needs a Demat account.

Any Indian resident, NRI (Non-Resident Indian), foreign individual, or entity such as partnership firms, companies, trusts, or institutions can be eligible to open a Demat account.

A Demat account is an electronic account that holds securities in dematerialized form. It eliminates the need for physical share certificates, offers easy and quick transfer of securities, reduces the risk of loss or theft, enables electronic trading, and provides convenient access to investment holdings and statements.

Dematerialization refers to the process of converting physical securities, such as share certificates, into electronic or dematerialized forms. This allows investors to hold and trade securities in a paperless manner.

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