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What is a Demat Account? Features, Benefits, and Process

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by Ankita Lodh on 12 July 2024,  7 minutes min read

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Whenever we talk about investing or trading, the first thing that comes to mind is creating a Demat Account. A Demat Account or Dematerialised Account, is mandatory if you want to buy or sell stocks in the market. 

Before the digital revolution took over, the process of buying and selling shares was done through certificates. To save time and hassle in managing the trading process, the National Securities Depository Limited (NSDL) introduced the digital version of holding shares for the first time. 

In today’s article, we will discuss what is Demat Account what is the use of it. Let’s get started. 

What is a Demat Account?

A Demat Account’s full form is Dematerialisation account. It works similarly to a bank account, where all your share certificates and other securities are held electronically. When you buy and sell shares online, a Demat Account holds the shares, securities, ETFs (Exchange Traded Funds), and mutual funds in a single place. The inconvenience of physically maintaining share certificates is eliminated as a result.

Let’s understand the concept of a Demat Account with an example. Suppose you bought X units of shares in Company A. Before the digital age, you would have gotten physical certificates from the exchange. But with shares being held electronically in Demat Accounts, the need for massive paperwork gets eliminated. 

Having a Demat Account is a mandatory requirement today if you are looking to invest in or trade in the stock market. 

Understanding Dematerialisation 

To understand the concept of Demat Accounts, one needs to grasp the idea of Dematerlisation first. Dematerialisation of shares is the process of converting your physical shares into an electronic format. This process is introduced to reduce the hassle and risk of handling paperwork. 

The Dematerialisation takes place when you convert your physical securities by filling out the DRF or Dematerialisation Request Form. If you are converting your physical securities into electronic form, ensure that you mention ‘ Surrendered for Dematerialisation.’ 

Features of Demat Account

A Demat Account comes with multiple features to make your trading and investing experience smoother. 

  • Seamless access

With a Demat Account, you will be able to access your investments with just a few clicks through net banking. This is quicker and more convenient than managing physical certificates. 

  • Enjoy dividends and benefits

Investors can receive interest and dividends credited easily and quickly in an auto-credited process. In cases of stock splits, rights issues, or bonus issues, Demat Accounts use an Electronic Clearing Service or ECS.

  • Dematerialise securities easily

Having a Demat Account means you can convert your physical certificates electronically and the other way around via the depository participant. 

  • Get loan facility

Opening a Demat Account also offers you the benefit of availing loan for your securities. 

  • Better security 

Get robust security, as you can freeze a particular amount of securities in your Demat Account for a specific period of time. This will help you freeze or stop any transactions from any cards into your Demat Account.

Benefits of having a Demat Account

Zero paper certificate 

When Demat Accounts were not introduced in the Indian equity market, traders and investors needed to store paper certificates of shares to keep the record. This process increased the risk of loss or damage to the certificates, along with long transfer processes. 

Easily store shares

You can trade in bulk and monitor the shares in your account by keeping an unlimited number of shares. Your Demat Account is another reliable source for speedy share transfers.

Multitude of instruments 

In addition to stock market shares, your Demat Account may be used to hold a variety of assets, including government securities, mutual funds, and exchange-traded funds (ETFs). Therefore, you may more simply and comprehensively approach your investing intentions and develop a broad portfolio with a Demat Account.

Simple access

It’s really simple to access your Demat Account. Using a laptop or smartphone, you may accomplish this and manage your assets at any time and from any location. 

Nominee facility 

You can also get the facility of putting a nominee. The process of nomination varies from one depository to another. The nomination process is necessary if the investor passes away. In that case, 

Types of Demat Accounts

Before opening a Demat Account, you need to get familiar with different types of accounts and understand which one suits your condition the best. It only takes a few minutes to open a Demat Account if you are an Indian resident. However, apart from a regular Demat Account, there are two different kinds of Demat Accounts available: repatriable and non-repatriable accounts. 

Regular Demat Accounts:

For Indian residents who wish to trade shares alone and require a place to store securities, there is the Regular Demat Account. As you sell stocks while trading, funds are taken out of your Demat Account, and vice versa. Since these contracts do not require storage, you can trade F&O without a Demat Account.

Repatriable account:

Indian investors who are not residents register a repatriable account to transfer their profits from the Indian market overseas. You must open a non-resident external account to receive payments and terminate your regular Demat Account in India to open a repatriable account.

Non-repatriable account:

While a non-retriable account acts as a retriable account, as a non-resident of India, transferring money abroad is not possible with this account. 

How to open a Demat Account with Dhanush?

As the best online trading app in India, with Dhanush, opening a Demat Account takes only a few clicks. Here is a step-by-step guide on how to open a zero brokerage Demat Account with Dhanush.

  • Visit mydhanush.com and enter your name and mobile number to open a Demat Account.
  • Select  “Open Free Demat Account” and you will receive an OTP to verify. 
  • In the next step, put your email address to verify your email.
  • Next, enter your PAN details. This is step 1 of the 4 steps to opening a Demat Account with Dhanush.
  • In step 2, fill in your bank details, which will redirect you to the next step.
  • After that, verify your KYC details with a selfie and signature verification. 
open a demat account with Dhanush
  • In the fourth step, you need to add your personal details, such as your trading experience, gender, and marital status. You can also add a nominee in this step.
  • Now, all you need to do is e-sign and enter your Aadhar details to complete the process.
  • Congratulations, You will get your client ID and password in the next 24 to 48 hours after OTP verification.

Click here to open your free Demat Account with Dhanush

Bottom line

Opening a Demat Account is a mandatory step before you can start trading and investing in the stock market with your daily investment app. While the process takes only a few minutes, you need to consider the ideal type of Demat Account for you, along with selecting a trustworthy Depository Participant. 

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FAQs

Can a minor open a Demat Account?

Yes, a minor can open a Demat Account. However, in this case, the account will be operated by a guardian until the minor reaches the age of 18. Usually, the father of the minor acts as the guardian, and in his absence, the mother. The guardian is appointed by the court if both parents are absent. 

What is the minimum balance in Demat Account? 

There is no minimum account balance to maintain in your Demat Account. You can keep your balance at zero or keep all your financial assets in it. 

 Can I have 4 Demat Accounts? 

Yes, you can have more than one Demat Account, as per SEBI’s (Securities and Exchange Board of India) guidelines. However, all your Demat Accounts are to be linked to your PAN. 

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