To invest in the financial market, the first step is to open a demat account. It is nothing but an online account that holds all the securities that you have invested in digital format. It is similar to a bank account and it simplifies the investment process by facilitating seamless buying, selling, and transfer of shares. You can also dematerialise your physical share certificates into electronic form by using this account. Similarly, rematerialisation of digital shares into physical share certificates can be done with the help of a demat account.
Uses of a demat account
A demat account allows you to invest or trade online in different market segments like Futures & Options, Equities, Derivatives, Currency, Commodity, etc. It means that you can place a buy order or sell order through a demat account. You can select any number of quantities for buying or selling the shares. Even buying and selling one stock is possible with a demat account.
Also, the bank account is linked to the demat account and as a trading account is integrated by default in the demat account these days. Also, no paperwork is required to carry out the transactions like buying, selling or transferring the shares. Therefore, the online transactions are carried out instantly and the stocks that you purchase are reflected in your demat account. In case you sell the shares, the money gets transferred into your account once they are settled by the DP. With the help of a demat account, you can transfer shares from one account to another seamlessly.
As the securities are held digitally in a demat account, there are no chances of them getting stolen or damaged. Therefore, holding securities in a demat account is far more convenient and safe as compared to holding physical share certificates.
How to use a demat account?
To use a demat account, you need some basic understanding of how to use computer or mobile websites. The brokerage firm with whom you have opened a demat account might also provide an application to facilitate seamless investing and trading opportunities for their customers.
Once you create a demat account, you will receive the login credentials on your registered email id and mobile number. You may use these login credentials to login into your demat account.
While the demat account holds all your securities, the trading account takes care of the buy and sell transactions. Once you purchase a stock, it usually takes T+2 days for them to get credited into your demat account. The same goes for selling the shares as well. However, when you sell the shares, the funds get reflected into your demat account instantly. Though you might not be able to withdraw these funds into your bank account instantly, you can use them as a margin for purchasing other shares or securities. Once the amount gets credited into your account, you can withdraw it to your bank account. The withdrawn money gets transferred into your bank account within 24 working hours.
You will need to pay a brokerage when you sell the stocks via a demat account. Different brokerage firms charge different fees when it comes to brokerage. It is recommended that you compare the brokerage and other fees like Account Maintenance Charges before opening a demat account. You may also freeze a demat account temporarily or deactivate it completely if you don’t require it. Also, opening multiple accounts with the same set of documents is possible. However, each demat account will cost you a separate AMC which is payable annually.