A demat account is opened to hold securities and shares in a dematerialized format. Investors can themselves or through agents conduct online stock trade and deposit their purchases in the demat account.
What is a demat account?
An investor can register with a bank or a stock broker and open a demat account. Many banks or brokers even offer investors the facility to open a free demat account when they register with them. Usually the brokers act as the investors’ agents when trading in securities and they charge commission for the same. It is possible for investors to trade in stocks online too; but a demat account is a must for online stock trading. This demat account is the account where all the securities and share certificates purchased by you are held. For all the sales or purchases of stock on the investor’s behalf, his demat account number needs to be mentioned.
How to open a demat account?
A demat account can be opened with any bank for trading in securities. Many banks and share brokers offer free demat account opening services as well. For opening a demat account, it is necessary to submit certain documents such as the PAN card copy, one cancelled cheque, address proof, identification proof, as well as the photograph of the account holder. You will be given an internet password to access your demat account and initiate the transfer or trade in shares and securities. Your demat account is usually linked to your bank account so as to facilitate the transfer of funds easily for the share transactions to take place. Note that the demat account is different from the online trading account though – as the demat account is where all the purchased shares and securities are held, while the trading account is the account through which online share trading actually happens.
Advantages of a demat account
Having a demat account eliminates the hassles associated with paperwork. It also makes the whole trading process through an online trading account easier and safer. There is also no need to pay stamp duty on the transfer of shares and securities, which happens immediately. The transaction cost is also reduced when a transaction happens online. With a single demat account it is possible to hold investments in both equity as well as debentures. The investor gets protection from forgery, theft, loss and mutilation of physical certificates too; and communication is faster and several delivery problems can be avoided. Liquidity and acceptability of securities is also enhanced.
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