DEMAT Account for beginners
DEMAT -(Demat account is a dematerialised account)
What is Demat account and its benefits?
If you are starting or willing to start trading or investing in Stock market, you must have heard this word, “Demat” a lot.
So what exactly is a Demat Account?
Demat is short for Dematerialized Account. That is, it dematerializes your / physical securities and enables you to hold on to your financial instruments in electronic form. If a savings account is used to hold your money, a Demat account is used to hold your Securities.
It is important to note that as an investor, you cannot trade in the stock market without a demat account. With a demat account, you can hold the certificates of all your financial instruments such as Mutual Funds, Exchange Traded Funds (ETFs), Shares and Bonds online.
After knowing much about shares, stock exchange, mutual fund and other things. let’s get a little practical.
What happens when you go to buy shares. in earlier days, there were share certificates which used to come to you. now all these share certificates Rd materialized. and the short form for D materialized shares. or to hold the place for these d materialized shares is called d-mat account.
you can compare a d-mat account to a bank account. the only difference being a bank account helps you hold your money, whereas a d-mat account helps you hold your shares.
Like you have a bank statement which tells you your banking transactions what were your receipts, what were your payments and what was the balance left. similarly a d-mat account tells you, what were the shares that you had purchased at what price, what were the shares that you sold at what price and what is the kind of brokerage and other transaction charges.
You have incurred in case of your share transactions one of the important things to note in a d-mat account is that a d-mat account operates like a trust. and when I say trust the custody of your shares lies with your bank. that means the bank technically called a depository participant is the registered owner of your shares. that means if you buy 100 shares of let’s say 8l. then registered owner of these hundred shares would be the bank in which you have your d-mat account.
Let’s say Bank of America is bank now if you check the register on a stock exchange they would say that Bank of America on your behalf is holding hundred shares. you are merely a beneficial owner. so there is a trust between the stock exchange and axis bank. where access bank will hold your shares and you become the beneficiary.
What is a demat account and how does it work ?
That’s how it works now these were some technical details. but from a comfort or a convenience standpoint it is very critical that you should have your damat account your broking code and your saving accounts with the same bank or financial institution. why because they can settle the transactions immediately and automatically for you. when you buy or sell shares you need a broken code.
When you actually execute buying transaction you will receive shares in your damat account and money will get reduced from your saving account. when you sell shares the exact opposite happens. now imagine a situation where you have Axis Bank as your banker, your damat account is with State Street Corporation and your broker is Citi. your life just becomes so complicated in signing confirmation between these three entities.
So it’s very important, that you practically understand what the d-mat account is and how to trade in shares, for ethical financial advice and honest opinions on financial matters.
Let’s address this one this time a stock exchange would literally mean a place where buyers and seller meat and the exchange shares.
What are the benefits of a Demat Account?
- 1. Easy to hold Physical share certificates are exposed to the risk of damage. However, with a certificate in electronic mode, you don’t have to worry about any wear and tear. All your securities are maintained in a safe and secure electronic manner.
- 2. Immediate updates Your portfolio is updated with every transaction you make. So, just by glancing at your demat account, you have a fair idea of all your holdings. In addition, since your details are already stored, you don’t need to fill out all the details for every transaction.
- 3. Lower costs When physical share certificates were used, stamp duty was one of the major cost that investors had to bear. Now, investors incur much lower costs by using demat accounts.
- 4. Reduction in delivery risks With physical shares, there was always the risk of loss of certificates, theft, fake certificates and so on. But with the reduction in paperwork, all these risks were eliminated. Once you conduct a trade, all the shares are automatically updated in your demat account.