What is a Demat Account And How Does it Work
10 June, 2021
You must be aware of the basics of the trading account and the benefits of opening a trading account in India. Check out our blogs about trading accounts to get the basic idea about what a trading account is and how it works. You might have also come across the word ‘Demat account’. If you are not sure what that really means and how it works, you have landed up on the right page. Here, we are going to talk about all that you need to know about the Demat account.
Basics of Demat Account (The WHAT)
Dematerialised account, often referred to as Demat account is a place to store your shares; just like you store your clothes in your wardrobe; as simple as that! Dematerialised means the shares that are converted from physical to electronic form. When you do online trading, you store all your investments in your Demat account; be it shares, securities, government bonds, Mutual Funds, or ETFs (Exchange Traded Funds).
How Demat Account works (The HOW)
Though the process is similar to physical trading, Demat account makes online trading easy and quick. The first step is to link your Demat account to your trading account. While a Demat account is just to store your shares, you will need a trading account to buy and sell those shares. Enjoy Fastest Demat Account Opening with Sharepa
As per the exchange rules, you will require margin to execute buy or sell transactions in the form of cash or pledge. Once you place an order, it will go to the stock exchange and will get processed. One the execution is successful, it will get settled on T+2 day. When you execute buy transactions and pay money, securities get credited to your Demat account. Similarly, when you execute sell transactions, the shares get debited from your account and money gets credited to your account in T+2 days.
Need for a Demat Account (The WHY)
As you know, the shares are stored in an electronic form, there is no fear of theft or forgery; so there is complete security. Secondly, it is time-saving, as the shares and securities are transferred to the online account immediately. Thirdly, it is extremely hassle-free; as in case of mergers and stock bonuses, the shares are transferred to your account automatically. Moreover, you can access all the information related to all your activities online on the website or mobile app on-the-go. Last but definitely not the least, it is economical due to the reduced transaction costs, as there is no stamp duty involved.
The Final Word...
Now that you are aware of what a demat account is and why it is so important to open a Demat account, you must start looking for a stock broker. Here are some of the most important things to consider while choosing a stock broking company. Once you have chosen a Online discount broker, you will be thrilled to start investing. However, we do not want you to make the most common mistakes, which is why you must take a look at some of the best stock market investment tips before you start.
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