Before the reason, you need to know how to open demat account. A demat account, short for “dematerialized account,” is an electronic account used to hold and trade securities in India. It is necessary for anyone who wishes to invest in the stock market and hold shares in electronic format. In this article, we will discuss the importance of a demat account and how to use it.
Why is a Demat Account Necessary?
In the past, shares were traded in physical form, meaning that investors had to hold paper certificates for their shares. However, this process was cumbersome and had several drawbacks, such as the risk of loss or damage of share certificates, delays in the transfer of ownership, and the need for the physical delivery of shares. With the introduction of demat accounts, these issues have been eliminated, making trading in shares more efficient, convenient, and secure as per the investing indices.
Some of the benefits of a demat account include:
- Once you know what is demat account, check the benefits that give you the reason to consider it:
- Convenience: A demat account allows investors to hold shares and other securities in electronic form, eliminating the need for physical certificates.
- Safe and secure: Demat accounts are protected by passwords, making them secure and reducing the risk of fraud or theft.
- Faster processing: Transactions in demat accounts are processed quickly, reducing the time required for the transfer of ownership and settlement of trades.
- Reduced costs: Holding shares in demat form eliminates the cost of stamp duty and other charges associated with physical share certificates and investing indices.
How to Use a Demat Account?
Opening a Demat Account: To open a demat account, an investor must first choose a Depository Participant (DP) who will maintain the account on their behalf. The investor must then fill out an account opening form, provide the necessary documents such as a PAN card, Aadhaar card, and bank details, and complete the KYC process. Once the account is opened, the investor can start trading in shares and other securities. Once you know about what is demat account?
Trading in Shares: To trade in shares using a demat account, an investor must first place an order with their broker. The order can be for buying or selling shares and must include details such as the quantity, price, and name of the company whose shares are being traded. Once the order is placed, it is executed by the stock exchange, and the shares are transferred from the seller’s demat account to the buyer’s demat account and check the investing indices.
Tracking Portfolio: A demat account also allows investors to keep track of their portfolio of shares and other securities. Investors can access their demat account online or through their mobile app, and view their holdings, transaction history, and current market value of their investments. This helps investors to make informed decisions about buying or selling shares based on their investment goals and risk appetite you would know if you check what is demat account.
Corporate Actions: A demat account also facilitates corporate actions such as bonus shares, stock splits, and dividend payments. When a company announces a corporate action, it is automatically updated in the demat account of the shareholders. For example, if a company announces a bonus issue of shares, the investor’s demat account is credited with the additional shares, and the total number of shares held by the investor is increased with the help of stock trading.