Demat Account
With technology advancements, the concept of demat account has been widely accepted and thus, made mandatory to deal in stock market. Online free demat account holds all investment and securities such as shares, bonds, and mutual funds in one place, while providing a convenient and hassle-free platform to keep a track of stock market.
What is Demat Account?
As mentioned above, demat account is a dematerialized account that is primarily used to electronically or digitally hold shares and securities. The idea of dematerialized account was introduced back in the year 1996 as an alternative to physical share certificates and soon the concept was widely popularly. This is because demat account was far easier, convenient and hassle-free to manage when compared to physical share certificates. In addition, it also eliminates the risks associated with physical share certificates such as wear & tear, damage, lost, forgery, and theft.
Unlike physical share certificates, demat account can be used to hold a wide variety of investments including ETFs, equity shares, bonds, mutual funds, debt securities, and government securities. Most importantly, demat account can also be used to buy and sell the shares and securities in just one click. In India, it is mandatory to open demat account to invest and trade in the stock market. Depositories such as National Securities Depository Limited (NSDL) and Central Depository Services (CDSL).
About National Securities Depository Limited (NSDL):
Everyone knows that saving money is a good habit to secure the future financially. After all, your money is what all your responsibilities rely on. As Demat Account earns you interest, it is a great financial tool to manage extra funds. The account makes it quite easy and convenient to access the money from your account, whenever needs arise. Also, it is among the most liquid investments that promises safe and secured banking. While considering this option, there are tons of benefits linked to the bank account. Let’s check out the top key benefits of Saving account.
About Central Depository Services (CDSL):
Central Depository Services (CDSL) was established in 1999 with an objective to provide convenient, dependable and secured depository services. In addition, it is a Market Infrastructure Institution (MII) playing crucial part in the capital market structure, providing services like exchanges, depository participants (DPs), issuers and investors, and clearing corporations.
Benefits of opening Demat Account:
Demat account was introduced back in year 1996, before that shares and securities were issued and traded physically. Soon after introducing demat account, the entire process of trading, investing, holding, and monitoring of shares and securities became much more easier, convenient and of course, cost effective.
Lower risks -Physical securities are risky due to thefts, losses, or damages. In addition, bad deliveries or fake securities pose further risks. These risks are completely eliminated with the opening of a Demat account, which provides holders with the option of holding all their investments in electronic form
Easy holding – Maintaining physical certificates is quite a hassle. Moreover, holding them securely and keeping a track of their performance is an added job, which is a time-consuming process. On the other hand, demat account holders can make this process a lot more easier, convenient, and hassle-free as they can manage all their accounts under a single platform.
Odd lots – While holding physical certificates, buying and selling of shares and securities were possible in restricted quantities only. In addition, the convenience of buying and selling of single security was also not an option. All such restrictions are eliminated with the introduction of demat account.
Reduced costs – While physical certificates involve additional fees and charges such as stamp duty, delivery charges, handling charges, and so on, demat account is free of any such additional costs. Thus, lowering the cost of handling shares and securities with demat account.
Reduced time – As demat account eliminates the paperwork, it requires lesser time to complete the transaction. Moreover, demat account allows the investor or trader to deal in more purchase and sale of securities in a shorter time and with greater efficiency. In simple words, it can be said that demat accounts are extremely hassle-free and worthwhile even for the beginners.
Features of demat account:
No paperwork required – Demat account is a complete online service and thus, eliminates tedious and hectic paperwork. The demat account can be opened instantly and the accountholder can immediately start trading as soon as the account has been activated.
Easy share transfer – Unlike physical certificates, shares can be transacted faster through a delivery instruction slip (DIS) or receipt instruction slip (RIS) for buying or selling of shares or securities. Investor or trader is required to provide the details for executing buying or selling of shares.
Faster dematerialization and rematerialization – Another great feature of demat account is that the investor can anytime convert their shares and security certificates into physical form. All they need to do is provide instructions to their respective depository participants (DPs) for the same. Alternatively, they can also convert their physical certificates into electronic format at given point of time.
Loan against securities – There are several banks and financial institutions which provide loan against securities. Therefore, another feature of demat account is that it can be used to aid financial assistance in case of an emergency. Lenders consider these securities as collateral to sanction loans. Once the loan is paid in full, the borrower gains full ownership of the shares and securities.
How to open a demat account?
Opening a demat account is no rocket science. The process is quite easy and hassle-free. Just follow the below given instructions to open demat account online.
- Reach out the stockbroker or depository participant.
- Fill the demat account opening form with the respective stockbroker or depository participant.
- Enter the required details in respective fields such as name, email id, address, mobile number, and PAN card.
- Add your bank account details such as bank name, bank branch, account number, and IFSC code.
- Upload the mandatory KYC documents to complete the process.
- E-sign the Aadhaar through an OTP sent on registered mobile number.
- Once the process is complete, you will receive a confirmation message along with your confidential login credentials.
Demat account concepts and processes:
With technology advancements, the concept of demat account has been widely accepted and thus, made mandatory to deal in stock market. Online free demat account holds all investment and securities such as shares, bonds, and mutual funds in one place, while providing a convenient and hassle-free platform to keep a track of stock market.
Objective of a demat account online:
Online demat account has been widely promoted and accepted due to numerous reasons that makes the trading from demat account easier and convenient.
Online demat account allows the investor to hold their shares and securities in digital form under one place, while eliminating the risk of damage, lost, theft, forgery, and/or misplacement of physical certificates. Hence, demat account online makes handling and tracking of shares safer and easier than ever before.
Free demat account makes trading operations simpler and hassle-free. Investors can transfer their holdings easily from the comfort of their home or office. In addition, the transaction is completed within a few hours from a demat account online as compared to in-person trading. The trading procedure has been made seamless and time-efficient with the advent of online demat accounts.
Demat account gives convenience to trade and track the shares in a hassle-free process. Demat account eliminates the cumbersome offline process of buying and selling shares and securities. It also removes the restrictions of selling shares in odd lots, thus allowing the investor to trade any number of shares and securities.
Demat account is entirely an online process, which involve much less paperwork, thus, making the process extremely cost-efficient and hassle-free. Having understood the concept and objectives of online demat account, here are some conceptions associated with free online demat account.
Depository participants:
A depository participant is a centralized authority platform where all the trading transactions are held. In India, there are two key depositories – the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). As per the Depositories Act, investors need to avail trading services through one of these depository participants.
Dematerialization of securities:
Basically, dematerialization is process where physical certificates are converted into electronic format. Later all the trading transactions are executed electronically, making the trading process extremely easy, convenient, and hassle-free.
Process of dematerialization:
Demat account has become mandatory to deal in share market. Therefore, it is mandatory to have an online demat account for free to hold and trade shares and securities. The process of converting the physical certificates into electronic format is extremely easy. Investors are just required to submit the physical certificate attached with the demat request form (DRF) to open a demat account. After submission, the depository participant will verify the details of an investor before forwarding the form to the company or registrar. Approximately, it takes 20-30 days of time to complete the dematerialization process.
Dematerialization credit:
Once the demat request form (DRF) is submitted, the registrar or company validates the details and processes the request. Upon successful completion of request, respective number of digital securities certificate is credited to the demat account of an investor. In case the demat account opening request gets rejected, investor can get in touch with the depository participant (DP) to seek assistance for re-submitting the demat request form.
Re-materialization:
For the uninitiated, demat account holders can convert their electronic holdings to physical certificates through a simple process. All they need to do is duly fill the remat request form (RRF) and the document must be signed by all demat account holders, and verified by the respective DP before submitting the form to the company or registrar. After receiving the re-materialization request, the demat account is duly reviewed and validated to process the request.
Freezing and de-freezing:
Demat account holders have the flexibility to freeze and de-freeze their accounts through a simple process. Demat account holders need to submit a request form to freeze or de-freeze their account. The request should be made in the appropriate format as determined by the DP.
What is dematerialization?
Ever since onlinedemat accounts are introduced, share trading in India has become much easier and convenient. Due to hassle-free demat account trading, the possession of physical share trading has declined steadily. In fact, regulatory body for trading market, Securities and Exchange Board of India (SEBI) has mandated to open demat account online to trade in dematerialized form instead of physical certificates. Keep reading to know exactly what isdemat account.
Dematerialization is basically the process to convert physical share certificates into an electronic format. These dematerialized shares are held and traded through an online demat account. In the current scenario, share dematerialization is mandatory to buy or sell the shares from or to other account.
Benefits of dematerialization of shares:
Now that you know what is dematerialization of shares, lets have a quick look to know some of the advantages of demat account.
Highest safety – Since demat account online eliminates the need of holding physical certificates, traders don’t have to worry about the wear-tear, damage, loss or theft of share certificates. Traders get highest safety of holding the shares and securities in digital format in one single demat account. In fact, the shares and securities can be accessed from anywhere and at any time.
Enhancedsecurity – There were many instances of forgery, theft, damage, fraud, and duplication while holding physical certificates. All such cases are abolished while holding the shares in a demat account online.
Instant transfer – With physical certificates, transfer of shares from one person to another includes hectic and time-consuming process. On the other hand, share transfers can be done instantly through online demat account.
Why is dematerialization of shares needed?
It is definitely hectic to keep track of all share and securities certificates. In fact, missing or loss of any of the document can lead to some serious concerns demanding a fresh set of certificates. Therefore, all such risks promote the need of demat account in share trading. There are certain reasons to promote the use of demat account online, some of them are mentioned below.
Convenience – The topmost reason to promote online free demat account is the amount of convenience it offers. Traders and investors have a choice to conveniently trade their shares and securities from the comfort of their home or office. In fact, the investor can access the demat account using their smartphone, laptop, and/or computer. Moreover, the physical certificates can be converted into electronic form at the convenience of investor.
Safety – Online demat accounts are highly safe and secure to trade the online share and securities. Demat account online is the most protected method to carry out online trading transactions. Certain risks such as theft, loss, or damage of share certificates that are associated with holding of physical shares are absolutely eliminated.
Fundtransfer – Investors can link their bank account with the online demat account to easily transfer funds between the accounts. Linking the accounts saves from the hassle of manually transferring or withdrawing the funds.
Nominationfacility – Demat account comes with additional feature to add nominee, so that the nominee can access and operate the demat account in absence of primary holder. This joint demat account can be accessed by both the holders. The only condition to add nominee is that the person should be of legal age, i.e. 18+ years old.
Paperless process – Unlike physical share certificates, demat account excludes any sort of paperwork. Since online demat account holds shares and securities in digital form, the need of lengthy paperwork is almost zero. This has also reduced the administrative and operational costs for the companies, cutting down the additional charges for the investors and traders as well.
Easy monitoring – Online demat account has made it easier for the investors to monitor their trading account from the comfort of their home, office, or anywhere across the world. There is absolutely no geographical restriction to access and monitor demat account online. Demat share trading account allows the investor to monitor the performance of their shares and securities anytime, thus, increasing the possibilities of making profit by making right moves at the right time in share trading.
Loan facility – The demat share trading account also comes with loan facility, that is, the investor or trader can avail loan against the shareholdings in dematerialized form. The shares and securities held in free demat account is treated as collateral against the loan.
Eliminates the odd lots concern – Before demat account was introduced, there were certain restrictions upon the quantity of shares and securities to be traded. The investors were not allowed to trade the desired number of shares. However, as soon as demat account become mandatory, it eliminated any such concerns. Thus, the traders can now buy or sell the shares and securities in any desired quantity.
Corporate benefits – Demat account is openedbydepository participant, which opens the doors for various corporate benefits such as interest, dividends, refunds, and so on. All such corporate benefits are credited directly to the de mataccount directly. In addition, stock split, rights shares, and bonus shares are also directly added to the demat account.
Multipleinstruments – Demat account is not opened for holding shares and securities, but can also be used to hold other investment instruments such as government bonds, debt securities, mutual funds, exchange-traded funds, and so on. Thus, the investor can access, monitor, and control all of their investment instruments at a single platform.
Primary share market
In terms of share market, a primary market is defined as a source of new securities. It is a place where securities are created. Firms and corporate companies issue their IPOs (Initial Public Openings) in the primary market only. These IPOs offer an opportunity for investors to trade in the market for a particular stock. An Initial Public Offering (IPO) basically occurs when a company or firm issues stock for the first time to the public.
All stocks issued on the primary market must file statements first with the Securities and Exchange Commission (SEC) and other security agencies. Companies cannot trade their stocks until their filings are approved by the concerned authorities.
Nowadays, public offerings are also held through a demat account in electronic mode. As opening demat account for free has been made mandatory, an individual can only apply in public issues through a demat account online. Allotment of shares is credited to the investor’s demat account and hence, there’s no hassle of managing the physical share certificates and keeping them safe from the risk of loss or damage.
There are majorly three entities involved for trading in the primary market – a company, investors, and an underwriter. A company issues the shares and securities as Initial Public Offering (IPO) in the primary share market; an underwriter determines the price of shares and securities, and monitors the new issue offerings; and an investor purchases the issued shares in the primary market.
Secondary share market
A secondary market is a platform where investors trade the shares and securities which they already own. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are examples of secondary market.
Instruments traded in secondary market:
Apart from stocks, other types of investment instruments such as mutual funds, bonds, and government securities are also traded in the secondary market.
Fixed income instruments – These are primarily debt instruments, which ensures regular flow of cash in form of interests while the principal or invested amount is repaid upon maturity. Debentures, bonds, and preference shares are some of the examples of fixed income securities.
Variable income instruments – As the name suggests, variable income instruments generate flow of income subject to various market factors. Equity and derivatives are some examples of variable income instruments. These instruments are exposed to higher risks and higher returns as well.
Types of Demat Account
As per the Securities and Exchange Board of India (SEBI) guidelines, it is mandatory for an investor or trader to open demat account for free in order to trade online in various investment instruments. There are various instruments that are traded through free demat account online. Therefore, it makes vital to understand about the types of demat account online to trade in various investment instruments. This is because it is important to open the right type of free demat account to make meaningful and fruitful stock trading choices.
Regular demat account:
Regular demat account are ideally opened for investors who are resident of India and the ones who invests and trades in equity shares only. An online regular demat account helps holding equity shares at one placein digital format. Online free demat account is highly safe and convenient to track all the buy and sell calls in a trading market. Regular demat account charges have been levied on the trading transactions.
Although, Securities and Exchange Board of India (SEBI) has recently introduced a new type of demat account, called basic services demat account or BSDA. This demat account functions more or less like a regular demat account; the only difference is that this new demat account has no additional trading fees and charges, if the holding is within Rs.50000. Moreover, if the holdings are between Rs.50000 and Rs. 2 lakhs, the new demat account charges will be Rs.100 per annum. With this demat account opening, SEBI has made it easier and convenient to invest and trade in the stock market online.
Repatriable demat account:
Repatriable demat account online is ideally opened by an NRI (Non-Resident Indian) to make an investment in the stock market of India. This type of demat account lets the investor or trader to transfer money abroad. Investor is required to have a non-resident external bank account to open a repatriable demat account.
In case an investor has become an NRI after opening the regular demat account, it is mandatory to close the account first and a repatriable demat account needs to be opened afresh. If an investor didn’t have any demat account prior to becoming an NRI, then a fresh demat account will be opened. Once the account has been setup, demat accountholder can readily make fund transfer to the Non-Resident ordinary demat account. However, with repatriable demat account, an investor can only make fund transfers up to USD 1 million annually.
Non-repatriable demat account:
Likewise, a repatriable demat account online, non-repatriable demat account is also preferred foran NRI. However, there’s a thin line difference between a repatriable demat account and non-repatriable demat account; and it is that the non-repatriable account doesn’t allow international fund transfers. Hence, an investor must have an NRO bank account linked to the free online demat account.
Conclusion:
Above mentioned were the types of online demat account in India that serve various purposes in the share trading market. A regular demat account is helpful for any Indian resident to process all their stock investments and keep a track of buy/ sell transactions at one place. Anyone can open a de mat trading account to make right trading moves at the right time to earn good returns.