Trading on the stock markets requires holding a dematerialization or demat account. Through owning a demat account one is able to trade in shares and securities in a digitalized form. Investing in stocks require the presence of three major things which are a bank account so that you are able to pay and receive funds. A trading account so that you can buy and sell shares online and the most important a demat account which will keep all your security holdings intact and all in one place. Know more.
A dematerialization or demat account can be opened with a depository participant (DP) which is authentic and legally registered. There are several registered DPs and choosing amongst them might be a tough and confusing task to perform. Demat account in its simplest term is an account that is used to hold the securities in dematerialized form. The concept first came in India in the year 1996 to convert physical shares of the investors into an electronic form. The demat account holds bonds, shares, exchange-traded funds, mutual funds and government securities.
Mutual funds are the most highly utilized investment tool used by professionals as well as beginners. Investing in mutual funds has been considered to be one of the safest investment strategies due to the varied level of diversification which it has to offer. Investing in mutual funds has become even more simple and accessible with the option of 3-in-1 accounts that provide the functions of demat, savings, and trading account all in a single entity. Also, since opening a demat account has become so quick, easy and hassle-free that investments have become simple through the use of demat accounts.
Holding a Demat account provides certain advantages which are:
- Involvement of minimum or no risk making it risk free
- Demat account provides an investor the convenience to deal in odd lots.
- The demat account reduces the cost of investing in the stock market.
- Easy to Maintain and track shares due to simple viewing of the portfolio all in a single place.
Also, Demat account helps in providing a central place for keeping or holding all the investments which you have made. NSDL and CSDL are two depositories in India that are used to hold all the demat accounts. The depository participants act as intermediaries which are helpful in access all the central depositories. Banks, brokers, and institutions effectively function as depository participants and are popularly and commonly referred to as DP. The depository participants have the options of offering certain facilities which are helpful in converting the physical instruments or shares into electronic form of credit in the DP account.
The demat accounts also have many varied added benefits which were not available in the physical storage or physical form of share holding of your investment record. Apart from holding all the investments, shares and securities in one place, these accounts also have the option and facility of automatic updation every time you carry out a transaction. Demat account has made holding of investment certificates free from risks as there are minimum or no chances of physical damage or loss.
Although the charges of purchasing mutual funds and any other instruments has increased, the overall cost and transaction fees has comparatively been reduced. Demat account prevents chances of fake shares, malpractices such as theft or robbery or damage which was common when paper was used as a mode trading and investing. The efforts and documents involved in the opening of a demat account are also very less and hassle-free.
Due to these varied number of benefits which a demat account has to offer, investments through a demat account have become relatively simple, easy, quick and totally hassle-free.