A demat account (short for a dematerialized account) is the basic requirement for electronic mode of share retention, tracking and trading. A demat account relies on the ease and reliability of digital mechanism of dealing with shares and securities and as such has various advantages over the traditional method of physical securities etc.
In India, NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) are the main registering bodies for issuance and setting up of demat accounts. A demat account, being electronic in operation, scores over the papered system which is inherently cumbersome and complex.
Advantages or Benefits of Demat Account
Following are the five major benefits of having a demat account:
- Timing and costing factor:
Earlier, when the bulk of shareholding and trading was done by paperwork, the whole procedures for securing permissions, issuance of certificates, documentation, form filling etc. were very burdensome and ungainly.
As India opened up its markets for electronic shareholding and trading in the 90s, a fresh lease of life was given to the general market mechanisms and shareholding began to gain popularity. This is because the time involved in all the procedures was reduced tremendously.
Setting up of a demat account takes up a few minutes and there is no need of any burdensome paperwork. The documentation is minimal and can be done very easily. This reduced the time involved as share trading became very fast. Besides, the costing was also reduced because the system was electronic. There was no need of any stamp duties on transfer of shares and securities and this reduced involved cost as well.
- Procedural convenience:
By opening a demat account, the entire procedure for tracking, monitoring and exchanging shares becomes very smooth. In earlier times, the trading of shares involved many certifications.
Besides, the process for buying and selling the shares was strictly formulated in such a manner that only specified quantities of shares were allowed to be bought or sold. Odd lots or exchanging of a single security was not allowed and such, traders had to face lot of inconvenience.
Demat account has nullified all these constraints and traders no longer have to face these problems.
- Factor of liquidity and market loans:
These days, owing to the many varied benefits of demat account the markets have opened up to various flexible options. It is very easy for a share trader to receive liquid cash after selling the shares as demat account has increased the potency of liquidity through electronic trade options.
Besides, any investor can get a secured loan against the securities that are retained in a demat account. Therefore, when it comes to liquidity, demat accounts offer multiple benefits.
- Automatic credit facility:
In days when non-electronic methods were followed for share trading, the process of selling shares and receiving earnest funds was very long. However, all this has changed with electronic technology as demat accounts come with auto credit features.
This means that the net receivable funds against selling of shares are automatically credited in the investor’s demat account. This feature is very beneficial when viewed in context of receiving dividends on stocks, refunds against stocks etc.
Moreover, in the processes such as rights issues, public offerings, etc., this feature comes in very handy.
- Facility of freezing:
In certain times, due to non-availability or any other concern, a shareholder may wish to put the account on hold. This may generally be done in order to prevent any unwarranted credit or debit of shares.
In case of physical shares, this facility was never available and there was no way in which a trader could put a hold on the trading account. However, this is not so with a demat account.
A demat account comes with the feature of freezing which allows a share trader to freeze his demat account, in consultation with his Depository Participant, so that there can be no auto credit or debit from the demat account. Needless to say that this ensures account and transactional security, besides making the whole system quite easy for the investor.
Share trading and exchange of securities is a dimension wherein the credibility of your Depository Participant must be very high in the market.
This is where the facilities and services offered by a trusted firm like Tradebulls comes into play. Tradebulls gives you a credible and secure platform for opening demat account and investing your money in shares.
For further details and to know more, connect with our advisors at online@tradebulls.in or 022-40001000.