With the ever-expanding stock market, the demand for Demat Accounts has soared in an unprecedented manner. In this regard, it is important to know about the meaning and benefits of Demat Account. A Demat Account is specifically designed for the purpose of trading online in shares and like investments. A Demat Account uses the technology of dematerialization: a process where the physical share certificates of the investor are converted into electronic or digital format. The account can be used for the purpose of buying or selling shares with ease.
A Demat Account is opened under a depository which can range from banks to other financial institutions. The link between the investor and the depository is managed by a Depository Participant, also known as DP. A DP acts as an agent or intermediary on behalf of both the investor and the depository. A Demat Account can only be opened by getting assigned with a Depository. The most important thing, however, which attracts the investors towards the Demat Account is the benefits it provides. The benefits of a Demat Account are numerous.
Benefits Of A Demat Account
- Quicker Transactions
The market, prior to the arrival of Demat Account, ran slower and more tediously than it does now. Earlier, physical stocks would take around 30 days for the transaction to go through completely. It would take even longer to show the results in an investor’s book. A Demat account copes with this problem highly effectively. Transactions done with this account produces instant results as investors can easily buy and sell shares as and when they want through the electronic medium. Besides, the results of these transactions are instantly reflected in the account of the investor.
- Risk-Free Stocks
When dealing with physical share certificates, an investor would constantly be under the risk of losing his shares, getting them damaged or the shares getting stolen from him. The dematerialized nature of shares has provided relief to the investors in regard to the safety of their shares. Also, it falls under the purview of the DP to look after the security of the investor’s stocks.
- Dematerialization and Reversal
The process of dematerialization follows the concept of converting physical shares into the digital form. However, if the investor feels the necessity of getting his electronic shares converted to physical shares, he can easily do it. The reversal of dematerialization is known as rematerialization. Thus, without a Demat Account, physical share certificates cannot be converted to electronic format. But with a Demat Account, the electronic share can get converted back to physical shares.
- All-in-one Account
Another benefit of Demat Account is that it encompasses all the shares, mutual fund units, bonds, etc in a single account. An investor, therefore, does not have to maintain a separate account for different forms of investment. Furthermore, this benefit enables the investor to keep a tab on all of his investments and get regularly updated about all of them by using the same platform.
From a single Demat account, all of an investor’s investment can be managed.
- Easy On The Wallet
A Demat Account helps in saving an investor’s money by cutting down on many expenses. In the physical stock dealing, a number of costs would be incurred, let alone the time it would take to get things done. Excessive paperwork, logistics expenses, and stamp duty are some of the expenses an investor can save upon by shifting his investments to a Demat Account. Besides, lesser expenses would encourage investors to engage more in investment and carry on with the greater flow of transactions.
- Effective Communication
One of the key benefits of a Demat Account is that it establishes connections of an investor with other investors. This advanced form of communication enables the investor to make better decisions regarding what to do with his shares. He can easily buy shares from other investors through a Demat Account or can sell his own to them. His Demat Account would be duly credited and debited on the selling and buying of equities.
- Freezing Demat Account And Equities
Among the benefits of Demat Account, one such is the option of freezing it. Freezing the account refers to temporarily stopping the activity of an account. An investor can choose to freeze his Demat Account for a specific period of time. This is principally done to avoid the unnecessary deductions that might come in his way. Not only that, but a Demat Account holder can also freeze a specific portion of his equities so that they do not remain subjected to fluctuations of the market either for the good or bad.
These are by no means the only benefits of Demat Account, they are just drawn out to give a rough idea about some of the facilities provided by the Demat Account. Other benefits of Demat Account would include
- Getting a loan against it.
- The benefit of opening the account with zero balance.
- The ease of accessibility.
- Liquidity of Shares.
With a Demat Account, therefore, an investor would be able to reap all investment benefits he can and thereby take smart and flexible investment decisions.