Do you have a bank account? Who must be wondering what is this question because the answer is obvious? Everyone has a bank account. Every single one. Also, if you are a trader, investor, or a beginner in either one of these, have you thought about a Demat account? If you have not, then you might want to reconsider. Here is all that you have to know about a Demat account and how it comes in handy for anyone.
Let’s get started.
What Actually is a Demat Account?
A Demat Account is an account used to keep electronic shares and securities. A Demat account is an abbreviation for a dematerialized account. The goal of opening a Demat account is to keep shares that have been purchased or dematerialized (converted from physical to electronic shares), making online share trading easier for users.
Depositories in India, such as NSDL and CDSL, offer free Demat account services. These services are facilitated by intermediaries, depository participants, or stockbrokers, such as Angel One. In these accounts fees and charges may vary depending on the amount maintained in the account, the type of subscription, and the terms and conditions between a depository and a stockbroker.
Now that we know the basics of what a Demat and Trading Account is, let’s keep going.
Dematerialization Explained
The process of changing physical share certificates into electronic form, which is much easier to maintain and accessible from anywhere in the globe, is known as dematerialization.
An investor or trader who wants to trade online must first open a Demat account with a Depository Participant (DP). The goal of dematerialization is to remove the necessity for investors to hold physical share certificates while also allowing for seamless tracking and monitoring of holdings.
Formerly, the process of issuing share certificates was time-consuming and complicated, which Demat has helped to revolutionize by speeding up the entire process and maintaining security certificates in digital format.
Once your account has been activated, you can convert paper certificates to digital format by sending all of your physical securities along with a Dematerialisation Request Form (DRF). Additionally, remember to deface each physical certificate with the words “Surrendered for Dematerialisation.” When you surrender your share certificates, you will be sent an acknowledgment slip.
Why Do You Need a Demat Account?
Let us look at the main advantages of having a demat account.
-
Preventing forgeries
– The risk of fraud is greater in the case of tangible shares or bonds. Yet, when it comes to running a paperless account, you have all of the necessary details and authentic data on file, preventing forgery or impersonation.
-
Loan Facility
– In addition to serving as a security deposit for your funds, the securities in your demat account can be used to obtain various bank loans. The securities can serve as collateral for a loan from your bank.
-
Cost-Effective
– One obvious advantage of Internet transactions is cost savings. Similarly, opening a Demat account online can save you money on expenses such as stamp duty and other handling fees that are required for physical bonds. The only fee charged in an account is for brokerage. Nevertheless, if you choose bargain brokers, you will be able to save even more money.
-
Lower risk of document loss
– Physical bonds and shares have a significant risk of document loss. During any unfortunate event, these shares may be misplaced. As a result, holding shares online is a considerably better and safer solution because it provides you with a permanent digital record of your share.
-
Simple Tracking
– Another advantage of opening a Demat account is that there is no tangible paperwork to keep track of. It always minimizes the work required to keep track of each of them. As a result, you are not required to keep a manual record. All of your documents, as well as a record of each investment, are securely stored.
-
Time-Saving
– Using a Demat account saves time when purchasing and selling shares. As a result, share liquidity is easier in this circumstance. The securities are held in a dematerialized form, online transactions are executed quickly.
-
Global Investing
– The spread of Demat accounts has substantially aided globalization. Via these accounts, foreign investors have simple access to the Indian stock market, benefiting the Indian economy.
-
No TDS on Demat Securities
– TDS, or Tax Deduction at Source, is one of the challenges that taxpayers confront. Yet, when a Demat account holder makes payments from his account, the CBDT-Central Board of Direct Taxes has granted a TDS exemption. Also, no TDS is deducted from the interest you earn on your bonds and securities. To avoid TDS, ensure your stocks are stored in Demat mode and are listed on the NSE and BSE.
Different Types of Demat Accounts
Now, you do not just have to stick to one type of demat account; here is a variety that you can choose from.
Demat Accounts are classified into three types:
- Normal Account- This account is mostly for Indian traders.
- Non-Resident Indians use this account, which plays an active role in sending funds abroad. The Repatriable account must be linked to the NRE account.
- Non-Repatriable Account- This is a type of Repatriable Account that is also used by Non-Resident Indians. This account, however, cannot be used to move funds abroad, and it requires a linked NRO bank account to work properly.
What You Need to Open a Demat Account?
You must submit some information for security reasons while opening a Demat Account. The following documents are necessary for the creation of a account:
- Identity Verification (E.g., Passport, Aadhaar, Voter ID Card, PAN, Driving License.)
- Address Verification (E.g., Passport, Voter ID Card, Ration Card, Insurance Copy, Utility Bills.)
- Income Documentation (E.g., Copy of Income Tax Return Acknowledgement, Salary Slip, Current bank account statement for the past six months, Statement of Demat Account holding.)
- Bank Account Documentation (E.g., Canceled Cheque, Photocopy of Passbook.)
- PAN card (Permanent Account Number).
- Latest passport-sized photos.
Final Note
A Demat account can come in handy in so many ways, as mentioned above, so why miss out on such a thing, right? Get your demat account done now and store away your investments there.
Also Read: – Life Insurance Costs In North America