Updated Feb 20, 2022

What is a DEMAT Account?

What is a DEMAT Account?

Introduction

Securities, stocks, bonds, and shares are all intangible assets. This means that although the returns are monetary, the way in which one manages them is not. Therefore, for any shareholder, especially in India, a special type of account needs to be opened. This is known as a dematerialized account or DEMAT account for short. The concept of DEMAT accounts began in 1996, and a span of two decades earned the ownership of multiple securities and shares available to investors.

A DEMAT account works like a bank account, the only difference being that this holds stocks and shares rather than actual money. Owners of a DEMAT account can trade these shares in the stock market as these are all in electronic formats. These accounts also eliminate the need to handle documents that can easily be lost, and the variety of investments that people can make is highly variable.

What are the Advantages of a DEMAT Account?

DEMAT accounts eliminate paperwork and tedious filling out of forms that were required in the past to buy and sell shares. A DEMAT account can avoid issues like a signature mismatch or even reduce the risk of forged signatures on share certificates. Some other advantages of dematerialized accounts are:

1. They are easy and convenient to track securities and shares.

1. There is no stamp duty to be paid on the shares one buys.

1. Safer than physical shares because there are almost always records of the investments.

1. It is easier to change information like addresses and contact numbers as the company has information on record.

1. It reduces the risks of delayed settlements.

1. Automatic credits and debits from DEMAT accounts allow for easy management.

1. DEMAT accounts are more cost-effective, and one does not need to incur printing costs related to share certificates.

How to Get a DEMAT Account?

The DEMAT account is opened with a central depository like the National Securities Depository Ltd. (NSDL) or Central Depository Services Ltd. (CSDL). These central organizations allot Depository Participants (DP), who are the middlemen between the firm and the investor. One can also go to a stockbroker who is a depository participant and allow them to handle their assets. There are many websites on which to find these depository participants and choose the right one they feel fits their needs.

Like a bank account, all one needs for a DEMAT account is the information on the investments on personal records, which can be easily accessed through multiple devices. After the DEMAT account is open, the investor gets a unique login ID and password to be able to access it. The details are given after the account is open are:

1. DEMAT Account Number: This is also called the ‘Beneficiary ID’ and is generally a mix of 16 alphanumeric characters.

1. DP ID: This number is given to the depository participant and is part of your DEMAT account number.

1. POA Number: This is part of the Power of Attorney Agreement between the investor and the Depository Participant and permits the DP to operate the account per the investor’s instructions.

Types of DEMAT Accounts

DEMAT accounts also generally come with Trading accounts that allow Indian investors to buy and trade shares as they please. However, these two accounts are not the same. A DEMAT account simply contains your details on the basis of which investors can buy or trade shares. However, a trading account needs to be opened for the actual process. There are three types of DEMAT accounts:

1. Regular Demat Account: This is for Indian citizens only and people who reside in India.

1. Repatriable DEMAT Account: This allows Non-Residential- Indians to trade within the Indian stock market and transfer money to and from abroad. However, they need another particular NRE account to be able to do this.

1. Non- Repatriable DEMAT Account: This is another type of DEMAT account for NRIs. However, this does not allow the transfer of money to places from outside India and vice versa. It also has to be linked to an NRO account.

Conclusion

For Indians trading in the stock market, DEMAT accounts are a good choice. They not only ensure safety but also make for easy management of funds. Although there are multiple parties involved in these transactions, they can be easily traced, and records can be brought out in the case of any default. Moreover, DEMAT accounts eliminate the need for physical share certificates and reduce the account management cost. The Depository Participants also help in this by suggesting which stocks and shares are best to invest in at the moment. With a DEMAT account in place, trading on the stock market also becomes more accessible, and the investor can make more profitable investments.