Investing in shares that are in physical form will require extensive paperwork and the process consumes too much of your time as well. Moreover, it also carries risks such as forged papers and dummy shares. To keep the entire process safe and convenient, you will need a Demat account.
What is a Demat account?
A Demat account enables you to store the shares in an electronic format. The Demat account meaning i.e. full form is a Dematerialized account as it converts physical shares into electronic form.
While trading online, the securities or shares that you purchase can be held in this account. Therefore, it facilitates easy transactions and a streamlined trading procedure.
It can also be used to consolidate mutual funds, ETFs, government bonds, and other investments in the same place.
Benefits of a Demat account
As a Demat account can be operated electronically, you don’t have to be physically available while settling various transactions. You just need an internet connection and a device like a smartphone, tablet, or computer that supports the internet.
After converting physical shares in electronic form, you become its legal owner and it also eliminates the need of transferring the certificates to the registrars or transfer agents to maintain the records.
Appointing a nominee
Once you open Demat account, you can also appoint a nominee who can trade on your behalf whenever such a need arises. The nominees also have the right to operate your account in your absence.
As securities are held in electronic format, the need of preserving documents and certificates gets eliminated. This not only reduces the cost, time, and effort that is required to maintain the physical documents but also reduces risks like thefts and forgery to a great extent.
Faster transaction & easy tracking
A Demat account ensures faster transactions as the issues like delay in deliveries or settlements are reduced considerably.
Through this account, you can track your shares from the comfort of your homes. This increases your interest level and participation which might ultimately result in more profit.
You can even link a bank account to it for transferring the funds quickly.
Using securities as collateral
Some securities like debenture and bonds can also be used as collateral while procuring a loan from your bank.
Therefore, holding them in your Demat account will prove to be more than useful as it would help you to avail secure loans at lower interest rates.
A Demat account is also beneficial to the companies and brokers as the electronic securities bring more transparency in the trading system. Depository partners can provide better services as the seamless transfer of shares satisfies the investors and they tend to trust them more.
As an investor, you must be careful while choosing a depository partner as he must be able to provide all the services related to the investments in which you are interested in.
New age brokers offer a broader range of services and charge a fixed brokerage fee per trade. This is far better than the depository partners who charge a percentage of your profit from every trade as brokerage fees.
Moreover, they provide a technology-based platform that can be used to participate in trading conveniently. These discount brokers also allow you to avail subscription packages that enable you to trade in various assets conveniently.