What is Demat Account & Why is It Needed?

Demat Account Introduction

Where investor can hold there Physical Share certificate, Exchange traded fund , Mutual Fund or other financial document in digital / Electronic formats. With help of Demat Account you can digitally secure your physical Certification into Demat form.

Demat is known as Dematerialisation. Its process of Transfer share certification from Physical to Digital (Electronic form) format.

Demat Accounts holds all your physical certificate in to Digital format. It’s one type of your Bank account where you can save your certificate and other financial documents, Exchange traded funds in Electronics formats.When the shares and other securities are dematerialisation their account are kept and maintained in the Demat account of Depository Participants. DP is authorised by CDSL /NSDL to operate Demat Accounts.

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Understand How Does Demat Accounts Works:

There are three major parties in Demat Accounts

1. Central Depository
2. Depository Participant
3. Investor or Demat account holder

Central Depository:In India there are two Central Depository – NSDL / CDSL

• NSDL (National Securities Depository Limited) – managed by NSE
• CDSL (Central Depository Securities Limited) – managed by BSE

Depository Participant: In India there are so many Depository Participant. Depository Participant work is provide linkage between Central Depository and Investor. DP could be a Broker , Bank or any Financial institution.

Investor or Demat account holder: Every Client has Unique client code or client ID. Its their identification number. Demat holder use their Demat accounts with help of Depository Participant.

Read more: How Demat Account Works?

Benefits of Demat Account?

• No Risk of Physical Damaged of Certificate
• Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)
• Immediate transfer of securities
• Traders can work from anywhere (e.g. even from home) not required to visit broker office.
• Easy to maintain Physical Shares
• Reduced paperwork for transfer of securities
• Easy and convenient way to hold securities
• Change in Address in one place and get updated in every company’s registrar records
• No stamp duty on transfer of securities
• Elimination of risk by loss, theft, mutilation etc.
• Reduced transaction cost
• Even one share can be sold no minimum lot required to share certificate
• Transmission of securities is done by DP, eliminating the need for notifying companies.
• Automatic credit into demat accounts for shares arising out of bonus/split, consolidation/merger, etc.
• A single demat account can hold investments in both equity and debt instruments.

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Read more: What are the Benefits of Demat Accounts?