In this digital age, there is no need to store and maintain physical certificates of securities as they can be held in electronic format. The electronic format of securities enables you to transfer, sell, and buy them in a streamlined manner.
The process in which the securities are converted from physical to electronic form is called Dematerialization and the place where these securities are stored is known as Demat account.
In short, if you want to know what is Demat account then you can consider it as an account where financial securities are held by investors.
A Demat account is a must if you are interested in share trading and it can also be used to hold different instruments like mutual funds, ETFs, equity shares, government securities, etc.
Which purposes does a Demat account serve?
Following are the purposes for which a Demat account can be used:
- For transferring shares from one account to another you will have to submit the DIS i.e. Delivery Instruction Slip after filling it up with all the necessary details.
Conversion of securities
- A Demat account facilitates the smooth conversion of securities from physical to electronic form and vice versa.
- If you want to obtain physical certificates of securities then you can instruct your depository partner (broker) to do so and this process is known as rematerialization.
- Similarly, physical securities can be converted into electronic form easily via this account.
- A Demat account can be easily accessed through a device that can be connected to the internet. Therefore, you can access it easily with your tablet, smartphone, laptop, and other internet-enabled gadgets.
Suspending Demat account
- You can suspend or freeze a Demat account for a particular period or an indefinite period if you do not want to participate in share trading and other online transactions during the given duration.
- Any credit or debit of shares can be completely avoided during this period. However, you must hold a particular number of shares for utilizing this option.
- Moreover, you can also unfreeze your account whenever you want to resume the transactions.
- Instead of using the physical DIS slip, you can also use an E-slip to process the transfer of shares without any inconvenience.
- Whenever you get refunds, dividends, interest, and other benefits from the company, the Demat account enables you to access these benefits seamlessly.
- Also, other actions like the splitting of stock, issuing of bonus, etc. are also updated automatically in this account.
Depository bodies like CDSL and NSDL offer various services related to opening and utilizing a Demat account via depository partners. The charges that you need to pay for opening a Demat account depends on the depository partner that you have chosen.
Some DPs offer a complete suite of services and charge a higher commission from the investors whereas discount brokers provide limited services and their charges are also comparatively lower than full-service brokers.
New age discount brokers allow you to pick the services, products, and packages that suit your investment needs. You also get an advanced trading platform that allows you to participate in trading conveniently. Therefore, you can seek the services of these discount brokers to open a demat account.