Opening a Demat account has many benefits, like less paperwork, quicker transactions, cost savings, and safe storage of investments. However, new investors often find it confusing. Here’s a simple guide to help both beginners and experienced investors understand how to use a Demat account.
What is a Demat Account?
A Demat account is like a bank account, but instead of holding money, it holds your securities (like stocks and bonds) electronically. It helps you buy, sell, and store your investments safely.
Why Use a Demat Account?
Since the early 2000s, SEBI has encouraged the use of Demat accounts because they are convenient, secure, and cost-effective. They protect against theft, damage, and loss of physical certificates. Plus, transactions are easier and cheaper without the need for physical paperwork.
How to Use a Demat Account
- Open Your Demat Account:
- Choose a Depository Participant (DP), who acts as an agent for the depository.
- Fill out an account opening form and submit your ID proof, address proof, PAN card, and a passport-sized photo.
- Agree to the terms and charges, and complete an in-person verification.
- Once approved, you’ll get a client ID or account number to access your Demat account online.
- Buying and Selling Shares:
- You also need a trading account and a stockbroker.
- Use your trading account to buy and sell shares. It takes about two days (T+2) for the shares to show up in your Demat account after a trade.
- Linking Accounts:
- You can link your Demat account with your trading account for easy access to your investments.
- Allocate shares to your trading account as needed, especially when you make new purchases.
Important Terms
- Dematerialise Securities: Convert physical certificates to electronic form.
- Rematerialise Securities: Convert electronic holdings back to physical certificates if needed.
- Nomination Facility: Assign a nominee to inherit your account holdings in case of your death.
- Investing: Use your Demat account to invest in bonds, mutual funds, ETFs, shares, government securities, IPOs, and SIPs.
- Tracking and Monitoring: Easily monitor all your investments in one place.
- Statements: Receive regular statements of your holdings via mail or email.
- Corporate Benefits: Get dividends, refunds, and interest payments directly to your linked bank account.
- Corporate Actions: Receive bonuses, splits, and rights issues automatically in your Demat account.
- Modifications: Update your address, bank, or signature with your DP, and it will be shared with all your investments.
- Power of Attorney: Allow someone else to operate your account if needed.
- Transmission: Transfer your holdings to your nominee or legal heir upon your death.
