Demat Account explained
Updated on Dec. 13, 2022, 1:04 p.m.
Demat Account helps the investors around the world to hold and securities and shares in the electronic formats. This account is also referred to as the Dematerialised Account.
The Dematerialised Account is a vital process dealing with conversion of the physical shares, stocks and debentures into e-formats. If you are a beginner in stock markets, then process will be annoying and you need Demat Account to invest in the stock markets.
Due to the initiatives of Modi government stressing on Online trading, the Demat has also gone online. The oldest Demat Account is the NSDL Demat Account.
The Demat Accounts are regulated by 2 institutions, namely the National Securities Depository Limited and Central Depository Services Limited. You will need an internet login and password to access Demat Accounts.
Demat Account in the Past
Before the invasion of the Online Transactions in 1998, the activity of selling shares was done in physical modes. So, you used to actually hold the physical shares like say 200 shares of Reliance Industries.
Furthermore, if you wanted to sell 200 shares, then you had to give the physical certificates to the broker looking for a prospective buyer. The broker works for a commission and hand over the physical share certificate to buyer and money gets credited to your account given.
The processing was irritating, time consuming and annoying as well. The feeling was surreal as you would be literally holding the shares in your hands. But now it has changed.
The settlement cycle was 14 days earlier and after 1998 the duration has come down to 2 or maximum 3 days. Now a person sitting on a hill top in Arunachal Pradesh can trade in the Indian Stock Market.
SEBI has made DEMAT Account vital for any person citizen of India willing to invest in stocks and person must be above 21 years.
What Securities Can be Stored in Demat Accounts?
Various securities are stored in the Demat Accounts you can store the shares and assets in a logical manner and they are given below as follows:
- Equity Shares.
- Capital Shares.
- Treasury Bills.
- Mutual Funds.
- Tax Free Bonds
- Preference Shares.
- Government Bonds.
- Commercial Papers.
- Extended Traded Fund.
- Certificate of Deposits.
- Bonds and Debentures.
- Sovereign Gold Bonds.
Types of Demat Accounts
The Demat Accounts has certain types and they are given below:
- Regular Demat Accounts: This is one of the major accounts ideal for the resident Indian investors willing to trade in the shares and storing the securities. The stocks get debited from your Demat Accounts, created while entering stock market and purchased during trading.
- Non Repatriable Account: A unique account ideal for foreigners and Non-Resident Indians as you can come and trade in India as it does not allow the money transfer to other nations.
- Repatriable Account: The account created for people living in India when they want to transfer their hard-earned money to other nations. You will have to create a repatriable account and close your regular Demat Account and open a non-residential external account to get the payments.
- Basic Demat Accounts: If you are new to stock markets, this is ideal one as it promotes new investors, not able to open regular Demat Accounts. They are created by SEBI and do no have any maintenance charges and if the value is less than INR 50000. You will incur INR 100if the value is more than INR 50000 and within INR 2 Lakhs.
Documents Required to Open Demat Account in India
There are various documents required in order to open the Demat Account in India and they are as follows:
- PAN Card.
- Aadhar Card.
- Income Proof.
- Voter Id Card.
- Cancelled Cheque.
- Bank Account Details.
- Passport Size Photographs.
- Address Proof like Telephone Bills, Electricity Bills.
Advantages of Demat Account
- There is no risk of loss, forgery or duplicate share certificates.
- The traders and brokers can work from anywhere in India.
- You can open multiple Demat Accounts in India and must pay the Demat Account Charges.
- The people handling the Demat Account are certified professional from the NSDL or the CSDL.
- You can easily sell the shares in seconds and easy loan against the securities.
- The cost is reduced as in earlier cases the investors had to cough up huge sums for stamp duty charges. At present the investors need to only pay 0.011% of the stamp duty charges.
- During the death of the investor, you can transfer the account to the relative of the account holder with no legal hassles.
- The issue of buying in bulk is avoided like in past, where in if you wanted to purchase 1 share of Infosys, you must purchase it in bulk or avoid it. This practice has come to a stop.
- The manual errors and manipulations have come down to zero.
- You can update the KYC (Know Your Customer) at one place like change of Address, Name, Age, Mobile Number, Emails in a matter of seconds.
- This account holds the Debt and Equity investments.
- As an investor you get the Demat Account Statement within minutes of requesting it and it has Statement of Accounts and the Statement of Holdings.
- Demat Accounts facilitates easy buying and selling of the assets.
Understanding the Demat Account Statement
This is an important document giving details about your Demat Accounts and transactions They are divided into 2 parts namely:
- Statement of Accounts: This deals with various transactions in your account and deals with the Units, Securities and Shares that has been debited from your Demat Accounts and other Credit Transactions.
- Statement of Holdings: This deals with various Assets in your Demat Accounts on a given date and shows the minutest details of these securities. The statement of holdings will consist of---
- Current Balance: shows the total balance and gives details about the number of Demat units available for trading. It also shows the transactions done in this account.
- Free Balance: This is an amazing subgroup of the whole balance and gives facts of the number of Demat Units actually free and available to do trading activity.
- Locked in Balances: This is a part of the total balance and gives number of units locked in and cannot be transacted. We can onlydo the pledged and unpledged transactions and no debt related units can be used.
India have 10 crore Demat Accounts
Some of the major reasons for India reaching the 10 Crores Milestone in Demat Accounts are given below as follows:
- Complete Digitalisation of the Financial segment.
- Spread of the Discount Brokerages in Demat Accounts.
- Due to lockdown people took to online mode and opened Demat Accounts.
- Participation of many persons from Tier3 and Tier 4 cities showing more interest.
- Changes in the KYC to E-KYC (Know Your Customer) as video conferencing developed.
During January 2021 the Demat Account reached a record 5 Crores Milestone. Furthermore, during January 2022, as per the data collected by the CDSL (Central Depository Service Limited) and NSDL (National Securities Depository Limited), India has reached 10 Crore Milestone in the field of DematAccounts. This is termed as 80% hike compared to the Demat Account in the last 25 years.
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