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Many of you have heard this term from your friend or your relative or buzzing around you somewhere,
But you are not getting exactly, what you want to know about Demat Account.
Don’t worry we are here for you and we will help you to understand what exactly the Demat account is.
Ok, Let’s first start with the history
I am hoping you are new to the stock market so let me tell you one fact.
Long ago, the Bombay Stock Exchange use to run on floor trading system which follows an open outcry system where traders would stand on the floor and shout prices of stocks for buying or selling, but with technological advancements, the functioning of stock markets has changed drastically.
The shift in the technological system brings the word “Demat” into the picture. After the introduction of technology, the shares are now issued to the shareholders in electronic form via the Demat account.
So, the concept of the Demat Account is introduced in the year 1996 in India.
Before that stocks and shares used to be exchanged via physical receipts called certificates, which involves lengthy paperwork and takes up a lot of time because the settlements of trade agreements took time due to the need to deliver the share certificates.
Hence, the process of converting your physical share certificates into electronic format is known as “dematerialization”.
In simple words, a Demat account is very much similar to a bank account.
Yes, all of you have a bank account, which lets you deposit and withdraw your cash
likewise, a Demat Account holds your security and it is either credited or debited every time you buy or sell shares of a publicly listed company.
Before moving further let me clear one question which might arise in your head
Is it necessary to have a Demat Account? So, the answer to this question is……
Yes, In India possession of a Demat account is mandatory if you wish to invest in the stock market.
A Demat account holds the securities in an electronic form thus, a Demat account offers the safety of your securities.
Till here everything is clear but let me draw your attention & want you to put some of your attention the word “Hold”.
So, what are those securities which can be kept in your Demat Account?
Your Online Demat Account can hold a wide variety of securities. Which are:
However, this account does not allow you to trade them. In short, it allows you only to hold the securities, but you won’t be able to buy or sell them, but if you wish to buy more or sell the already existing ones, then you will need a trading account.
Keep this thing in mind, your Demat and Trading account is different. A Demat account holds your security and a trading account allows you to buy & sell the security.
Now, let’s understand how a Demat account works.
The working of a Demat account is complemented by two other accounts, your bank account, and your trading account. As mentioned earlier, a Demat account is used to hold the shares bought through the trading account. So, in the stock market, buying of stocks can be done only through a trading account.
Here is the process that will explain to you exactly how a Demat account works:
You can open a Demat account if you fulfil the eligibility criteria mentioned below:
In order to open a Demat Account you should have the following list of documents:
In case of a demat account contact, the depository participant or DP, the details of which can be obtained from the official Central Depository Service or National Securities Depository Limited. For opening a trading account approach a broker or broking firm Like: Zerodha, Upstox, Angel One, 5paisa, etc
An individual may have multiple demat accounts if he wants to.
Moreover, there is no compulsion to open DP account with your stockbroker.
Please make a note that you will be charged with annual maintenance fees for the maintenance of your account.
So, if you are willing to invest in equities and enjoy the benefits of compounding by investing for long term, please go and open a demat account today.