A Demat or dematerialised account is equivalent to a bank account that provides the account holder virtual storage by holding shares, securities and bonds in electronic format. It helps investors to create a portfolio of stocks, ETFs, Bonds, Mutual funds and similar capital market assets.
Introduction to a Demat Account
For an individual to trade in the live market session, one must open a demat account and a trading account with the same SEBI registered broker. To transfer and withdraw funds from the trading account, one has to link a savings bank account with a trading account. It will enable the transfer of funds for purchasing shares or withdrawing funds after selling securities.
The demat account offered by most brokers comes with various features for account holders. They are easy to operate with all the required instructions to follow. Once an account opens after successful verification, orders can be placed to buy and sell securities. Soon it is processed by the exchange and reflected on the account. After the settlement tenure, virtual shares are either deposited or withdrawn based on our transactions.
What is intraday trading? Usually, individuals participate in the stock market with intentions of either buying securities and holding these shares for the long term or buying and selling shares for short-term gains. The form of trades that involve longer tenure as weeks, months or years are called investments, and when someone buys and sells the same script, on the same exchange, by the same broker, within the same day, it is termed Intraday trading.
Benefits of a Demat Account
- Quick & remote access
With application/software services and website logins, it becomes easy for a user to access and navigate the trading account, current prices, sectoral indices, portfolio holdings, Systematic Investment Plans (SIP) for Mutual funds, gold plans etc.
- Reliable Storage
There is always a risk involved with holdings of physical shares like losing or misplacing the share certificate, storing contract notes, and delays in submission or settlement tenure. It is convenient to virtually store and access the required information on time.
- Stock dividends
Certain companies with good profits in a year, offer dividends to the shareholders from the profits earned. These dividends in a digital payments form are transferred hassle-free into our savings account linked with the demat account. Then the funds can be used to re-invest or withdraw.
- Loan against securities
The stocks in our demat account are virtually present instead of the traditional physical form. The accumulated value of the holdings with the per-script value is derived from the current prices of the shares purchased over time. If one applies for a loan from a financial institution as collateral, they can submit the details of our demat account and freeze the sale of shares from it. After successful verification and acceptance, the loan is allotted to us depending on the value of our portfolio holdings.
Demat Account Charges
- Account Opening charges (If any) – Most discount brokers in India offer free demat accounts and trading accounts for users. However, some high-end brokers might charge hefty fees for HNIs, NRIs and HUF accounts.
- Maintenance charges – Almost all brokers levy annual or monthly maintenance charges. As per new guidelines from SEBI, the maintenance charges for Basic Service Demat Account (BSDA) will be applicable based on the holding value of the account.
- DP transaction charges – Depository Participant (DP) charges are applicable after the transfer of shares. When shares are sold from the demat account, a DP Transaction fee is imposed by Indian custodians, CDSL and NSDL.
- Late fee/Late payment charges – After purchasing shares with no funds, one has two days to transfer the funds to our broker. If the funds aren’t transferred/available in our trading account within two days of buying, they are charged a late payment penalty depending on the total value of the purchase order.
Open demat account
Everyone who wants to invest in the stock market must first get a demat A/C. We will provide a thorough explanation of how to open a demat account in this article. We will also provide useful tips to help you choose the right demat account provider.
Steps to Open Demat account
- Choose a demat account provider: The first step in opening a demat account is to choose a reliable demat account provider. Look for a provider that offers a user-friendly platform, low fees, and good customer support.
- Submit the application form: Once you have chosen a provider, you will need to submit an application form along with the required documents. The documents required may vary depending on the provider, but usually inclu
- de proof of identity, proof of address, and bank account details.
- Verification process: The provider will then verify your documents and information. This process may take a few days to complete.
- Activate the account: Once the verification process is complete, you will receive your account details and login credentials. You will need to activate the account by setting a password and linking it to your bank account.
- Start trading: After you have activated your account, you can start buying and selling securities through the provider’s platform.
Keeping aside all the charges and penalties, one can achieve good earnings through investing or trading. However, trading on a daily basis involves very high risks due to fluctuations and constant changes in market sentiments. Thus, new traders must consider the risks while trading.
Read also: Start Stock Trading: The Beginner’s Guide to Making Money in the Markets