Investing through Demat Account

by Kashish Bhatia

It’s completely true that the stock market is a risky place to invest money, however simultaneously it can do wonders to multiply one’s finances. All you need is staying away from myths and remember discipline and observational skills make one a superpower of the stock market.

Now, how can you buy shares in this market and what is the role of a Demat account in the same?

Well, firstly, a Demat account or Dematerialized account is a virtual account which enables investors to trade in the stock market without pen and paper. Financial securities (equity or debt) in electronic form, are deposited in it. These electronic shares are deposited with a depository. In India, Demat accounts are maintained by two depository organisations, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). A depository participant (DP), such as a bank, acts as an intermediary between the shareholder and the depository.

Features and Merits of Demat account

  • A special number called the Demat account number is used for all virtual transactions and electronic settlements of trades. The Dematerialized account can be accessed through an internet password and a transaction password. Transfers or purchases can then be initiated.

  • Sales and purchases of securities are automatically made once transactions are confirmed and completed through Demat account.

  • Delivery instruction slip (DIS) and receipt instruction slip (RIP) enable the investors to easily transfer their holdings.

  • Demat account minimizes the risk of counterfeiting of the ownership and skips the probability of any sort of illegal activities.

  • Investors can temporarily freeze their Demat account in order to pause debit and credits from the account.

  • Hidden expenses are eliminated when the Demat account is used.

  • In their Demat account, investors can club all their investments like shares, mutual funds, other securities, etc.

  • Conversion of electronic shares into physical ones and vice versa is a quick and easy process.

  • Even minors can have a Demat account owned by their legal guardians.

There are indeed many more benefits of enabling transactions through Demat account, and the list goes on.

How can you open a Demat Account?

Opening a Demat Account is quite easy. You can create it online using the Aadhar card linked to the bank account. There are a few simple steps like providing your personal information, submitting documents, etc. and it’s done. Once everything is completed, a 16 digit Demat account number is provided to the account holder.

How to use a Demat Account for investments?

  1. The foremost thing to note is that the investors’ accounts should have margin money before starting trading.

  2. To operate a Demat account user needs to open a trading account. Demat is basically a bank account which pools the stock of shares the investor holds. Shares sold are removed from the Demat account and shares purchased are added to it.

  3. A trading account can be opened online and different types of orders can be placed from anywhere. When the user selects the stockbroker(stockbrokers are the intermediaries in the processing of orders of stock exchanges.), investors can then submit the account opening form for a trading account and provide all the required documents to the broker. Finally, the user will be given a unique identification number.

  4. Then the bank account, trading and Demat accounts should be linked by the user. The investor can begin the trade by placing buy or sell orders through the online trading account or by phone if the brokerage firm allows. Demat account shares will be debited in case of sell order and vice versa.

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