What is Demat Account
Demat Account works like a bank for your shares, government bonds, and mutual fund. Stock in accounts remains dematerializes. It is a process that converts physical shares certificate into electronic format. This account functions like a bank account for holding money and other activities done in passbook. Dematerialization of certificate makes it easy and accessible from anywhere. Similarly, securities too are held in electronic form and are credit debit accordingly. Another important update about this account is that its account can be open with zero balance.
The benefit of Demat Account
As it is a paperless transaction, hence it has made life simpler by avoiding all manual processing. Following are the benefits of dematerialized account system:-
- Transactions through Demat account are safe and secure because of paperless transactions. Fraud chance reduces as there is no receiving of duplicate shares. This entire process also reduces the
- Your Demat account will get an update and shared with the third party automatically. You don’t have to submit any account details everywhere you transact in shares, mutual fund, and bonds.
- If you have more than one bank accounts and trading accounts, your single Demat account details are with all participants and all your shares, Bonds and Investment Instruments are deposited in your common Demat account
- It is cost effective as it offers paperless transactions. Due to this, it cut down cost dramatically. Also when the trade was executed manually then stamp duty and registration was also required but not now.
Documents Require for Opening Demat Account
- ID proof (Aadhaar, PAN, Voter Card, Driving License, passport)
- Address Proof (Voter ID, Passport, Driving License, Bank Account Passbook, Ration etc)
- Bank Account Details
- Passport size photograph
Importance of Demat Account
Holding a share in physical form involves lots of paperwork, a risk of fake shares and other long processes. So for trading and investing, Demat account is must required to trade in India’s stock exchange. However, SEBI has allowed traders to settle up to 500 shares in physical form but this option is not preferably anymore. It holds the certificate of financial instruments like MF, bonds, government securities etc.