A demat account is like a savings bank account for the securities that you own. ‘Demat’ is the shortened form of ‘dematerialisation’, which indicates that the securities are held in digital form. You can use a demat account to invest in all kinds of securities. Mutual funds, bonds, and shares are all exchanged through demat accounts. If you want to buy and sell shares in India through the stock exchanges, a demat account is mandatory.
Advantages of using a demat account
Possible to trade in equities
Dematerialisation in equities was introduced in 1996. Then in 2014, the Securities and Exchange Board of India (SEBI) discontinued physical trading. As a result, you can no longer buy and sell equities in physical form. Only the digital trading of securities is possible. So, if you want to buy or sell stocks, you will need a demat account.
Transfer of investment benefits
Investment portfolio benefits and the benefits of corporate actions are transferred automatically into demat accounts. Bonus share issues and rights issues have a direct impact on your demat account balance. This makes it easier for you to monitor your transactions and returns.
Reduced chance of damage and loss
Physical securities may be damaged or lost. But since demat accounts store securities in digital form, those risks and inconveniences no longer exist.
Better flexibility and more options
A demat account allows a lot of flexibility when it comes to investing in financial instruments. It is a convenient way of holding securities. You can invest in many instruments such as shares, mutual funds, and initial public offerings (IPOs).
Easy portfolio management
You can see the state of your investments, including the profits and losses generated. Since you can view all the instruments in your portfolio, you can make buy or sell decisions based on your future plans. You also get to know about fraudulent transactions, if any, through email or SMS alerts. Service providers also send updates on dividend declaration, results, and buyback, among other things.
Setting alert parameters
Timely decisions are crucial for maximising profits from your investments. If you lack the time to track market movements on a daily basis, a demat account allows you to set alerts. You can set parameters based on which you will receive investment information. You can also issue buy and sell instructions in advance. The instruments will be automatically bought or sold based on your pre-set prices.
Transfer of securities
Demat accounts allow for the immediate transfer of securities. There are no associated costs like in physical transfers. Expenses like stamp duty are also eliminated. The paperwork is minimised too. Moreover, you avoid the risks of bad delivery, delay, and theft, which are associated with physical holdings.
Demat accounts are essential if you want to trade in the securities market. While they offer several advantages, it helps to open a demat account with a reputed player like Kotak Securities. You could then gain access to a range of stock market analysis and data. You could check live market updates, track your holdings, and receive trade recommendations. And you can rest assured that all your transactions will take place through secure channels.