What are Demat Accounts? Definition, Types, Benefits & Features
What are Demat Accounts? Definition, Types, Benefits & Features

A Demat account, short for "dematerialisation", is a digital vault for your stock investments. This account stores your shares electronically instead of dealing with physical paper certificates. Demat accounts are designed to ensure the security of your shareholdings and reduce the risk of loss or forgery.

You need two key accounts, a Demat account for electronic shareholdings and a trading account to quickly execute buy and sell orders to participate in the market. In 1996, demat trading was first introduced in India for transactions of the National Stock Exchange. In the past, it used to take a long time for people to open an investment account, and they had to do it face-to-face. But things are getting a lot easier right now. In just five minutes, you can open your Demat account online. The popularity of these investment accounts, known as Demat Accounts, has been greatly increased through this online method.

To learn and understand what is Demat account, read this detailed article below.

Types of Demat Account

The various kinds of demat accounts are as follows.

1. Regular Demat Account

Traders and investors living in India are advised to maintain a Demat account regularly. It is the most common type of Demat account, and it's suitable for people who have a predominant interest in equity transactions. This will allow for the purchase and sale of shares in electronic form, ensuring that investments can be stored safely and securely.

2. Non-Repatriable Demat

For non-resident Indians (NRIs), a non-repatriable Demat account is sometimes referred to as an NRO Demat account. The amount that can be sent to their nation of origin is limited, though. Foreign currency exchange is not an option for investments made with this account. An ordinary nonresident NRO bank account connected to a savings account is also required. This account will be primarily used for managing the revenue that nonresident investors (NRIs) earn in India, including bonuses and dividends.

3. Repatriable Demat Account

Foreign nationals can also trade and invest in Indian equities using a repatriated Demat account. Traders and investors can transfer money outside of the nation with this kind of account if needed. But in order to use this kind of Demat account, traders or investors need to have a Non-Resident External (NRE) bank account connected to it.

Features of Demat Account

Let's take a look at the basic features of the Demat account to get a clear idea of what it is all about.

1. Easy access

Through online banking, a Demat account offers quick and easy access to all of your investments and statements.

2. Simple Conversion

You can quickly and simply dematerialise and transform your hard copy share certificates into digital form by working with a depository participant (DP).

3. Easy Share Transfers

Having a Demat account makes transferring shares considerably quicker and easier.

4. Share Liquidity

Selling shares and getting quick access to money is easier and more convenient with demat accounts.

5. Loan facility

After opening a Demat account, you can obtain a loan and use the securities housed there as collateral.

6. Dividends and benefits

It reduces the time taken to receive dividends, interest, or refunds. These earnings will automatically be credited to your account. You can update your account with information on stock splits, bonus issues, rights, public issues, and more by using the Electronic Clearing Service.

Benefits of Demat Account

The advantages of having a demat account are as follows.

1. Cost-Effective

Other costs, e.g. administrative fees and stamp duties, which may be unforeseen, are also incurred by physical transactions. These additional costs are eliminated by the Demat accounts, leaving you with only brokerage fees that are transparent and upfront. You can further increase your savings by switching to discount brokers, which will make Demat accounts a cost-effective option for today's traders.

2. The risk of document loss is reduced

Prior to the introduction of the Demat account, shares were usually in the form of physical paper certificates that could be tampered with, stolen, lost or forged. In addition, the transfer of shares required a lot of paperwork that often led to errors or delays. You can safely keep all your shares electronically in a Digital Repository with the Demat Account.

3. Time Saving

Demat accounts make it easier to buy and sell shares while boosting liquidity in the market. Furthermore, significant improvements have been achieved in the transfer of shares.

4. Easy Tracking

Demat accounts reduce the effort required to keep track of physical documents. In addition, it eliminate the need for manual record-keeping since all your documents are stored on a secure server in combination with investment records.

The securities investment process had been too complex and time-consuming before Demat due to heavy paperwork. It was expensive and complicated to manage all paper securities prior to 1996. It was also accompanied by risk factors, for example, theft and physical damage. To open a hassle-free Demat account and to start trading safely go ahead with an online stock trading app like BlinkX for safe and secure trading. Dematerialisation has made the overall trading experience more accessible and less time-consuming. It also facilitates the purchase and sale of securities, thereby making them safer and more safe.

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