If you own shares, you probably own them as physical shares in the form of share certificates or in your demat account. All companies listed on the Stock Exchange of India are obligated to offer shares in these two forms. While the share certificates provide information about the company and number of shares you own as an investor, dematerialization is simply the process through which share certificates are converted into electronic form. Once these shares are converted in the dematerialized from, you can hold them in your demat trading account. Here are some important facts about demat account that you need to know.
What is a demat account?
In 1996, the Securities and Exchange Board of India (SEBI), the largest capital market regular in India, issued a verdict that mandated all investors wishing to invest and trade equity shares to own all their securities in dematerialised (short for demat) form. This demat trading account is like a savings bank account, however instead of holding money in the account, you can hold all your investments – shares, bonds, mutual funds, money market instruments and other such investment securities. You can use the account to buy and sell securities and it is especially essential for daily online traders.
Demat account facts you need to know
Now that you know demat account meaning, here are a few important facts that you need to know
Demat accounts are extremely convenient and cost less:
Demat accounts do more than just holding your shares; they can hold your equity and debt instruments, mutual funds, government bonds, money market instruments and all other kinds of investment instruments. All these instruments can be dematerialized, eliminating the need for paperwork altogether. Also, this account is highly liquefiable and you can liquidate your investments whenever you like. You can transfer securities at a much quicker pace as a result of reduced paperwork. Moreover, since securities are held in demat form, the costs associated with transactions are reduced dramatically.
You can own multiple demat trading accounts:
There is no restriction on the number of demat trading accounts you can open. You can choose various depository partners. For instance, you may want to open an account with a bank with which you have a working relationship as well as a broking company like Angel Broking Limited, because you can get expert tips on investments from the latter. Also, there is no restriction on the amount of sums or investments you can hold under one account.
It takes a few days to open the account:
While you can open the demat account online or by visiting a depository participant’s office (example Angel Broking Limited), you can only access the account after a few days. This is because the depository participant is obligated to conduct your background verification. Typically, it takes anywhere between 7 and 14 working to open the account. As soon as you receive communication about the same from your depository participant, you can add beneficiaries to the account.
KYC compliance is mandatory for demat account holders:
In order for you to be able to access your demat account; you must complete the Know Your Customer or KYC compliance formalities. For this, you need to submit self-attested photocopies of your PAN Card along with another Identity proof and address proof document. You can complete this formality at the office of your depository participant or on via e-KYC facility offered online.
Demat account eliminate threats such as loss or damage of physical share certificates, making them the ideal choice for investors. All transactions are conducted online through secured fire-walls that keep your investments safe.
Pankhudi Dave is a retired financial professional with over 15 years’ experience of working in a bank. She loves writing and wishes to educate finance aspirants on investment. In this article, she has explained Demat Account. She has listed some facts about the Account